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Oil Prices Drop Ahead Of Fed Announcement

After reversing last week's rout and rising for two consecutive days earlier this week, oil prices were down on Wednesday morning in Asian trade ahead of a Fed update on interest rates and other monetary policy measures.

At the time of writing, Brent crude was changing hands for less than $75, with West Texas Intermediate at a little over $69 per barrel, both down modestly from Tuesday's close, which saw both benchmarks gain around 2% as fears around the banking system began to subside.

Last week, oil prices dropped by $10 per barrel as the markets were roiled by the collapse of two banks in the United States and the near-collapse of Credit Suisse, which was subsequently saved by a takeover by domestic rival UBS.

"Fears of a banking crisis and a recession have eased, brightening the oil demand outlook at least for now," City Index senior financial markets analyst Fiona Cincotta told Reuters this week, as central banks pledged more liquidity support for commercial banks.

Meanwhile, hedge fund manager Pierre Andurand said this week that the latest oil price rout was speculative and the result of banking sector concern rather than anything else. He predicted oil will rebound and hit $140 per barrel of Brent crude by the end of the year.

"Even when we peak, oil demand won't fall down so fast. We will reach peak demand towards 110 million barrels per day and then a slow decline from there," the hedge fund manager said at the FT Commodities Global Summit.

In the more immediate future, the market appears to expect the Fed to announce a rate hike of 25 basis points, which would be half of the previous hikes of 50 basis points. There are also expectations that the U.S. central bank might put future rate hikes on hold.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More