- The US Federal Reserve held rates unchanged as markets had expected.
- Crude inventories dropped in line with expectations last week.
- Japan’s exports fell in August for a second consecutive month.
Oil prices dropped by about 1% to a one-week low on Wednesday following the Fed’s rate decision. The US Federal Reserve held rates unchanged as markets had expected. However, it maintained its hawkish stance with another rate hike projected for the end of this year.
Brent futures for November delivery went down 81 cents, or 0.9%, to close at $93.53 a barrel, while US West Texas Intermediate crude (WTI) for October delivery went down 92 cents, or 1.0%, to close at $90.28.
Fed policymakers still believe the central bank’s benchmark overnight rate will peak this year in the 5.50%-5.75% range. This level is a quarter of a percentage over the current range. Interest rate hikes to control inflation can slow economic growth and lower oil demand.
“A combo of more interest rate hikes, dollar strength, and oil price increases will increase the likelihood of a recession,” analysts at energy advisory Ritterbusch and Associates stated in a note.
On the other hand, energy markets ignored the US energy data showing crude inventories dropped in line with expectations last week. Strong oil exports drove this crude stock draw.
The US Energy Information Administration said in a report that gasoline and diesel stocks fell as refiners started annual autumn maintenance. Crude stocks plunged by 2.1 million barrels in the week ending Sept. 15 to 418.5 million barrels. Meanwhile, analysts had expected a drop of 2.2 million barrels. The drop in inventories came due to a 2,000-barrel-per-day climb in crude oil exports, the EIA report showed.
US gasoline futures fell to their lowest in two weeks, reducing the gasoline crack spread, a gauge for refining profit margins, to its lowest level since December 2022.
In Britain, data showed an unexpected drop in inflation in August, as the consumer price index dropped by 0.1 percentage points to 6.7%. This figure is the lowest since February 2022. Moreover, Goldman Sachs expects the Bank of England to maintain interest rates unchanged on Thursday due to the fall.
Japan exports (Source: Ministry of Finance)
In Japan, exports fell in August for a second consecutive month, weighed by a drop in China’s demand for heavy oil and steel. This decline rekindled fears of a downturn amid elevated global interest rates.