Oil prices cut gains ahead of Fed decision


SINGAPORE: Oil prices retreated in Asian trade on Wednesday following fresh indications of growing oversupply ahead of the US Federal Reserve’s long-awaited decision on interest rates.

After a late technical rally in New York, US benchmark West Texas Intermediate (WTI) for January delivery was trading 26 cents lower at $37.09 by 6 a.m. local time, while Brent crude for January was 19 cents down at $38.26.

“WTI gave back some of those gains early this morning as a report from the American Petroleum Institute showed that US crude inventories had increased by 2.3 million barrels in the week through to 11 December,” said Bernard Aw, market strategist at IG in Singapore.

“Furthermore, markets are expected to stay cautious ahead of the (Fed policy) meeting, even though there is an overwhelming consensus that the Federal Reserve is poised to raise interest rates this Thursday (Asia time).”

The US central bank will announce its decision at 7 p.m. local time on Wednesday, along with Fed projections for growth, inflation and interest rates over the next two years.

Higher US interest rates will make it costlier for countries with weaker currencies to purchase oil, further dampening demand.

Prices have fallen more than 60 percent since June 2014 owing to anemic demand, a slowdown in key energy-consuming markets like China and a global glut.

The refusal by the Organization of the Petroleum Exporting Countries in early December to resort to production caps accelerated the fall in the past two weeks.

Analysts say Iranian oil also looks certain to re-enter markets next year after the lifting of sanctions linked to its controversial nuclear program.

The UN watchdog International Atomic Energy Agency on Tuesday said it was closing its “consideration” of “possible military dimensions” of the program, clearing one hurdle for sanctions relief under a deal between Tehran and six major powers.

“Sanctions against Iran can be lifted as soon as January as the IAEA ended its 12-year probe into the Islamic nation’s nuclear research, which can put downward pressure on oil,” Bloomberg News quoted Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, as saying.

“If US supplies expanded, it can be a strong bearish factor because seasonally it’s the time for stockpiles to shrink.”



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