By Florence Tan
SINGAPORE (Reuters) – Oil prices edged lower on Monday ahead of a Federal Reserve meeting as investors try to gauge the central bank’s appetite for further rate hikes amid concerns over oil growth. Fuel demand in China and increased supply of Russian crude weighed on the market.
Brent crude futures fell 29 cents, or 0.4%, to $74.50 a barrel at 0058 GMT. U.S. West Texas Intermediate (WTI) crude was at $69.93 a barrel, down 24 cents, or 0.3%.
Both benchmarks recorded their second consecutive weekly declines last week as disappointing economic data from China raised concerns about growing demand from the world’s biggest rough importer, offsetting a rise in oil prices. Saudi Arabia, cutting production by an additional one million barrels per day (bpd) in July. .
“Oil prices are caught in a clash between two opposing forces, bearish asset allocators pointing to monetary contraction and bullish oil speculators expecting lower inventories in 2H23,” said Francisco Blanch of Bank of America Global Research in a note.
“The bearish dispatchers will hold the upper hand for now, as oil prices struggle to recover until the Fed loosens the money supply,” Blanch said. The bank still expects Brent crude to average around $80 a barrel in 2023.
Most market participants expect the U.S. central bank to leave interest rates unchanged at the end of its two-day monetary policy meeting on Wednesday. The Fed’s rate hikes strengthened the greenback, making dollar-denominated commodities more expensive for holders of other currencies and weighing on prices.
On the supply side, despite Saudi promises to cut oil production four times in the past year, Russian supply has held up as sanctions have been designed to have less impact on production, Blanch said.
Russian oil exports to China and India have increased despite the implementation of the European Union embargo and the G7 price cap mechanism which began in early December.
Goldman Sachs cut its oil price forecast on higher-than-expected supplies from Russia and Iran and raised 2024 supply forecasts for the two producers and Venezuela by a total of 800,000 bpd. .
The bank’s December crude price forecast now stands at $86 a barrel for Brent, down from $95, and $81 a barrel for WTI, down from $89.
(Reporting by Florence Tan; Editing by Tom Hogue)