The global benchmark, the Brent crude oil is bullish in the London session on Wednesday, as geopolitical tensions in Europe especially and the Middle East raised supply concerns.
Both benchmarks were initially bearish in the Asian session in what was perceived as profit-taking, ahead of updates from the U.S. Federal Reserve and U.S. oil inventory data. Oil prices hit seven-year highs last week on worries that supplies could tighten due to Ukraine-Russia tensions.
U.S. President, Joe Biden stated on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine, while Western leaders stepped up military preparations and made plans to shield Europe from a potential energy supply shock.
What you should know
- Concerns about the Middle East also rose on Monday, when Yemen’s Iran-aligned Houthi movement launched a missile attack on a United Arab Emirates base hosting the U.S. military. However, U.S. and Emirati officials said the attack was thwarted by U.S.-built Patriot interceptors.
- The Brent crude futures is up 0.2%, currently trading $88.33 a barrel, paring losses earlier in the session. The global benchmark jumped 2.2% in the previous session. The U.S. benchmark, the West Texas Intermediate (WTI) crude futures is up 0.47%, currently trading $86.00 a barrel, having climbed 2.8% on Tuesday.
- The United States’ Federal Reserve ends a two-day policy meeting later in the day, with market players anxiously awaiting further clues on the timing and pace of interest rate hikes, as well as how the central bank will go about slimming down its almost $9 trillion balance sheet.
Hiroyuki Kikukawa, general manager of research at Nissan Securities stated, “The market downside is limited due to heightened tensions between Russia and Ukraine and the threat to infrastructure in the UAE.” He also added that oil was likely to continue its upward run after the Federal Reserve policy meeting.
Tsuyoshi Ueno, senior economist at NLI Research Institute had this to say, “Investors locked in profits just in case of a collapse in global share prices following the Fed’s update on its monetary policy.”
Weekly U.S. inventory data released overnight by the American Petroleum Institute (API) met expectations. Market sources stated the data showed U.S. crude and distillate stocks fell while gasoline inventories rose for the week ended Jan. 21.
Traders were now looking forward to the Energy Information Administration (EIA) report, due for release later in the day, for confirmation of those trends. Separately, the U.S. Department of Energy said on Tuesday it had approved an exchange of 13.4 million barrels of crude oil from the Strategic Petroleum Reserve to seven companies as part of Biden’s effort to help control oil prices.