ALBAWABA – Oil prices ticked up on Tuesday as the US dollar slipped ahead of the United States (US) Federal Reserve (Fed) meeting and the release of the Consumer Price Index (CPI) data.
Brent crude futures for February were up $0.47, or 0.6 percent, at $76.50 a barrel, Reuters reported, and West Texas Intermediate (WTI) crude futures for January gained $0.50, or 0.7 percent, to $71.82.
Meanwhile, treasury yields were up as the US dollar fell, with Bloomberg’s dollar index spot down 0.18 percent, at 103.9100, all US treasuries in the green, and 10-year yield at 4.2 percent.
The central bank’s Federal Open Markets Committee (FOMC) convenes today for a two-day policy conference to decide on whether to hike US interest rates, in light of the latest inflation readings.
The Fed is widely expected to pin interest rates for this month on Wednesday, according to Reuters.
However, the November minutes showed policymakers were still concerned that inflation could be stickier than expected, effectively leaving the door open for more hikes.
Tuesday’s CPI will give Wall Street a sense of whether the disinflation trend is continuing.
In the meantime, an attack by Yemen’s Houthi group against a commercial chemical tanker bound for Israeli ports – according to Aljazeera – bolstered oil prices.
Oil prices edge up, US dollar down ahead of Fed meeting - Shutterstock
The attack caused a fire and some damages but no casualties, US officials confirmed to Reuters on Monday.
Notably, supply concerns have persisted despite the oil cuts announced by the Organization of Petroleum Exporting Countries and its allies (OPEC+) for the first quarter of 2024.
A recent restocking of oil inventories in the US helped oil prices up as supply dropped intermittently, but oil markets remain oversupplied overall.
Oil investors remain sceptical that total supply will drop after the OPEC+ cuts supply by 2.2 million barrels per day (bpd) through March 2024, Reuters reported. Output growth in non-OPEC countries is also expected to lead to excess supply next year.
These three-month voluntary cuts may not be long enough. Crude oil physical and futures prices show increasing signs of surplus ahead of their implementation.
Both WTI and Brent are in a contango. A market state where prompt contracts are lower than later-dated contracts, for the first several months of 2024, Reuters reported. That indicates that investors feel there is lower demand for crude or adequate supply for those months. Especially with China’s oil imports declining in November, noting that China is one of the two biggest oil markets in the world.
