Oil prices saw modest gains on Wednesday as investors remained cautious ahead of a potential U.S. interest rate cut, while a drawdown in U.S. crude inventories provided additional support.
By 0923 GMT, Brent crude futures were up by 57 cents, or 0.78%, at $73.56 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude gained 63 cents, or 0.90%, to reach $70.71 per barrel.
The Federal Reserve’s two-day policy meeting, which began on Tuesday, is in focus. Investors are awaiting the central bank’s updated economic projections and the so-called “dot plot,” which could offer insights into the interest rate outlook for 2025 and 2026. The Fed will release its policy statement at 1900 GMT, followed by remarks from Chair Jerome Powell.
Markets are pricing in a 95.4% probability of a quarter-point rate cut at this meeting, according to the CME’s FedWatch tool. Lower interest rates typically reduce borrowing costs, which can stimulate economic growth and boost demand for oil.
“Oil prices should respond more to the crude inventory draw reported in API data overnight. However, central bank rate decisions often dominate investor sentiment, leading to more cautious trading,” said John Evans, analyst at oil brokerage PVM.
U.S. data from the American Petroleum Institute (API) on Tuesday showed a decline of 4.69 million barrels in crude stocks for the week ending Dec. 13. Gasoline inventories increased by 2.45 million barrels, while distillate stocks rose by 744,000 barrels, according to sources.
Analysts had expected a smaller pull from storage, with a Reuters poll estimating a reduction of about 1.6 million barrels for the week.
The U.S. Energy Information Administration (EIA) will release official oil storage data on Wednesday.
Despite the inventory draw, concerns about a potential trade war and uncertainty over the Fed’s future rate cuts are limiting oil’s price upside. “Trade war fears and uncertainty regarding the U.S. Fed’s interest rate cuts next year are capping oil’s price potential,” said Giovanni Staunovo, UBS analyst.
“There is a prevailing concern that U.S. policies under President Trump could lead to inflation, which, combined with worries about the Fed’s independence, is making oil investors hesitant,” added Priyanka Sachdeva, senior market analyst at Phillip Nova.
In geopolitical news, the European Union on Tuesday adopted its 15th package of sanctions against Russia in response to its ongoing invasion of Ukraine. The new measures target 33 vessels from Russia’s shadow fleet used to transport crude or petroleum products. Britain also imposed sanctions on 20 ships involved in carrying illicit Russian oil.
While these sanctions may add volatility to the oil market, they have not yet succeeded in cutting Russia out of the global oil trade.