Investors are cautious ahead of the Fed meeting, expecting rates to remain unchanged
Oil prices fell on Wednesday following a nearly 1 percent drop in the previous session, driven by a U.S.-Russia agreement on a 30-day ceasefire in Ukraine’s energy sector and increasing crude inventories that intensified oversupply worries.
Investors were also exercising caution due to the ongoing Federal Reserve meeting, where the central bank is anticipated to maintain current interest rates on Wednesday.
Brent Oil Futures expiring in May decreased 0.4 percent to $70.25 per barrel as of 22:05 ET (02:05 GMT), while West Texas Intermediate (WTI) crude futures also fell 0.4 percent to $66.48 per barrel. Both contracts had risen significantly in early trade on Tuesday following escalated tensions in the Middle East but closed nearly 1 percent lower after the introduction of temporary peace measures in Ukraine.
Read more: Oil prices climb to $71.32 amid Mideast tensions, China’s stimulus
U.S.-Russia peace agreement influences oil market dynamics
Russian President Vladimir Putin has consented to a 30-day halt of attacks on Ukrainian energy infrastructure, a proposal initiated by U.S. President Donald Trump. This agreement is intended to de-escalate tensions and safeguard critical energy assets in Ukraine, representing a potential step toward broader peace negotiations.
This temporary truce has injected new dynamics into the global oil market, especially regarding supply expectations. If U.S.-Russia peace talks on Ukraine are successful, Washington may ease certain sanctions on Russian energy exports, either by relaxing restrictions on oil trade or allowing more exemptions for buyers. This would enable Russia to boost crude and refined product shipments. Such prospects contribute to ongoing concerns about an oversupplied oil market, particularly as other factors, such as OPEC+ plans to unwind production cuts starting in April, are also expected to increase global crude supplies.
“The potential lifting of Russian sanctions added to concerns over a surplus, as OPEC and its allies plan to boost production next month.Additional downside risks stem from shifting global trade, which could dampen growth and weaken consumption,” told Vijay Valecha, chief investment officer, at Century Financial, Economy Middle East.
“Signs of slowing demand emerged after industry data showed a larger-than-expected build in crude stocks last week. However, heightened violence in the Middle East, threatening supply disruptions from key oil-producing regions, helped cushion some losses.”
API reports significant crude stock increases
The American Petroleum Institute (API) reported a significant rise in U.S. crude oil inventories on Wednesday, with stocks increasing by 4.593 million barrels for the week ending March 14. This build surpassed analysts’ expectations, which had projected a much smaller increase of 1.170 million barrels. This marks the second consecutive week of substantial inventory builds, following a 4.247 million-barrel rise reported the previous week.
Market participants often interpret rising inventories as a bearish signal, indicating either an oversupplied market or a slowdown in demand. Traders will be closely observing upcoming reports from the U.S. Energy Information Administration (EIA) for additional confirmation of these inventory trends.
Middle East conflicts heighten supply concerns
After nearly two months of ceasefire, Israeli airstrikes targeted the Gaza Strip on Wednesday. Additionally, the U.S. administration pledged last week to continue airstrikes against Yemen. The escalating conflict has heightened concerns regarding potential disruptions to crucial shipping routes in the Red Sea, significantly impacting global oil markets. The Middle East region plays a vital role in global energy markets, and increased tensions can lead to apprehensions about possible disruptions.
