Oil loses ground in cautious trade ahead of Fed meeting

Singapore — Oil prices dipped on Tuesday due in part to the prospect of rising supply from Russia, slower-than-expected downstream demand in sectors such as jet fuel, and cautious trading ahead of the Fed’s decision on US interest rates.

The Brent crude oil futures contract for May delivery slipped 15c to $86.74 a barrel by 4.33am GMT, while US West Texas Intermediate (WTI) prices fell 14c to $82.02. The WTI April contract, with expires tomorrow, fell 15c to $82.57.

Both benchmarks reached four-month highs in the previous session, buoyed by lower crude exports from Saudi Arabia and Iraq and signs of stronger demand and economic growth in China and the US

Regarding Russia, supply concern stemming from increased exports following Ukrainian attacks on the country’s oil infrastructure continued to pressure prices downward.

“Attacks will likely reduce Russian crude runs by up to 300kbd [thousand barrels a day], in addition to scheduled maintenance closures.... Lower primary runs, however, would lead to higher crude oil exports, helping Russia to simultaneously achieve output cuts while keeping exports flat,” JPMorgan analysts wrote in a client note.

Russia will increase oil exports through its western ports in March by almost 200,000 barrels a day (bbl/day) against a monthly plan for 2.15 million barrels a day, while on a daily basis, shipments will increase by 10% compared to its initial plan for March, Reuters calculations showed.

Prices were weighed down by uncertainty about how US interest rates would pan out ahead of the Federal Reserve meeting on March 20 at 6pm GMT.

“The market may be in consolidation mode awaiting signals on rate cuts from this week’s FOMC [Federal open market committee] meeting,” said DBS Bank energy sector team lead Suvro Sarkar in an email.

“Oil prices are already up quite a bit over the last two weeks, factoring in higher geopolitical risk premium after the attacks on Russian refineries.... There could be some profit-taking at these levels as we doubt price movements above $85 a barrel will be sustainable in near term for Brent.”

On the demand side, analysts were slightly cautious on demand growth coming from the jet fuel sector ahead of the summer travelling season in the third quarter of the year.

Global jet fuel prices are likely to be “higher by 5.4% over our previous forecast to $111 a barrel as soft demand is expected to give way to peak summer travel and stronger prices”, BMI analysts wrote in a client note.

“However, a global economic slowdown will temper consumption of air travel and weigh on jet fuel prices limiting price upside,” they said. 

Reuters