- Crude oil futures edged lower in mid-morning trade in Asia on Jan. 26 in what was expected to be a day of thin trading as participants await the outcome of the US Federal Reserve meeting for pricing cues.
- Financial markets have been on edge in recent weeks amid a decidedly hawkish turn by the Fed.
- In the US, crude oil inventories fell 872,000 barrels in the week ended Jan. 21 according to the American Petroleum Institute, media reports indicated.
Crude oil futures fell in Asia’s mid-morning session on Jan. 26 in what was expected to be a day of weak trading as investors awaited the outcome of the US Federal Reserve meeting for pricing indications as reported by S&P Global Platts.
Financial markets on edge
At 10:23 am Singapore time (0223 GMT), the ICE March Brent futures contract was down 12 cents/b (0.14%) from the previous close at $88.08/b, while the NYMEX March light sweet crude contract was 27 cents/b (0.32%) lower at $85.33/b.
Financial markets have been on edge in recent weeks amid a decidedly hawkish turn by the Fed.
The policymakers are meeting over Jan. 25-26 and investors are keenly awaiting clarity on the steps it will take to curb multi-decade high inflation.
“Ahead of the Fed meeting outcome today, some market participants may be staying on the sidelines and refrain from taking on more risk until there is greater clarity on the Fed policy outlook,” IG market strategist Yeap Jun Rong said.
Any hawkish signal from the Fed will likely bolster the US dollar, which in turn could be expected to weigh on crude oil prices.
Geopolitical risks
Geopolitical risks also remained in focus as a ratcheting up of tensions on the Russia-Ukraine border in recent days kept investors on edge. The US and UK have ordered diplomatic staff or their dependents to leave Ukraine, while NATO said late Jan. 24 it was putting its forces on standby and reinforcing Eastern Europe with more ships and fighter jets.
“Ukraine is a crucial oil and gas transit hub between Russia and Eastern Europe, therefore further escalation of tensions could threaten oil supply and may drive prices higher,” IG dailyFX strategist Margaret Yang said.
Global supply outlook
In the US, crude oil inventories fell 872,000 barrels in the week ended Jan. 21 according to the American Petroleum Institute, media reports indicated. Gasoline stocks rose 2.4 million barrels over the same period, while distillate stocks declined 2.2 million barrels.
With the global supply outlook set to remain tight in the near-term and geopolitical tensions unlikely to ease soon, analysts expect oil prices to face a few hurdles in the climb toward the $100/b mark.
“We think if Brent were to significantly break above the $90/b resistance level, it may test the all-important $100/b handle quickly,” OCBC Treasury Research analysts said in a Jan. 26 note.
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Source: S&P Global Platts
