Fed Stance Causes Oil To Drop, But Analysts Still Predict $100 Prices Soon

Meanwhile, stockpiles globally continue to diminish: File Image/Pixabay.

Proving that earlier hopes of central banks pausing their rate hike increases were naïve at best, the U.S. Federal Reserve projected a further hike by the end of the year – and this caused oil prices on Wednesday to fall by about 1 percent.

Brent settled down 81 cents, or 0.9 percent, to $93.53 per barrel, while West Texas Intermediate settled down 92 cents, or 1.0 percent, at $90.28.

Despite the price decline, Brent and WTI remained in technically overbought territory for a 14th straight day, the longest streak since 2012 and 2018 respectively.

Ed Moya, senior markets analyst at Oanda, pointed out that "A small inventory drop and the risks that Fed policy will be restrictive a lot longer than initially expected is allowing energy traders to lock in some profits."

Jitters over rate hikes eclipsed news from the U.S. Energy Information Administration that crude inventories fell by 2.1 million barrels last week, close to analysts' expectations in a Reuters poll for a 2.2 million-barrel drop; also, stockpiles in Cushing, Oklahoma dropped to 23 million barrels, about 2 million barrels shy from minimum operational levels.

Wednesday's losses also seemed to obscure the fact that the Fed postponed raising rates until year end (it decided for the time being to hold rates at its target range of 5.25 to 5.50 percent), and they did not take into account that Britain experienced a surprise drop in inflation in August, as the consumer price index fell by 0.1 percentage point to 6.7 percent, its lowest since February 2022.

Goldman Sachs said it expects the Bank of England to keep interest rates unchanged on Thursday as a result of the fall.

Meanwhile, Andrew Botterill, analyst at Deloitte Canada, became the latest in a growing list of experts forecasting $100 oil as a growing possibility later this year due to global demand and factors such as Saudi Arabia and Russia extending their output cuts; media noted that if this comes to pass it will put growing pressure on consumers at the gasoline pumps, and in turn a spike in prices could make it harder for banks to rein in inflation.