Oil prices fell by 2% early on Wednesday as the market frets about the potential tapering of the Fed's asset purchases that could slow growth and reduce appetite for riskier inflation-hedge assets such as crude futures.
As of 7:47 a.m. EDT on Wednesday, ahead of the weekly EIA inventory report and before the Fed announcement, both Brent and WTI prices were trading down by 2%.
WTI Crude was down 2.11% at $82.14 and Brent Crude traded down 1.89% at $83.10, as the market expects the Fed to announce later today the start of tapering of the asset purchase program because of increased concern over inflation, according to economists polled by Bloomberg.
The U.S. dollar strengthened before the Fed's announcement, further weighing on oil prices as a stronger dollar makes crude more expensive for holders of other currencies.
Additionally, oil prices fell following another crude oil inventory build estimated by the American Petroleum Institute (API).
The API estimated on Tuesday that the inventory build for crude oil was 3.594 million barrels as of last week, which was API's sixth straight week of reporting crude inventory builds. Despite the six weeks of builds, U.S. crude inventories are still 57 million barrels below where they were at the beginning of the year.
Cushing inventories have already drawn down more than 30 million barrels so far this year. And this week, the API reported yet another draw, of 882,000 barrels, on top of last week's 3.734-million-barrel decrease.
The OPEC+ meeting on November 4 is also making the market anxious amid persistent calls from the U.S. on the alliance to raise oil supply by more than the planned 400,000-bpd monthly increase.
Apart from agreeing on production levels for December, OPEC+ "must also consider what to do with Nigeria and Angola which trail their combined quota by more than 400,000 barrels per day due to various problems," Saxo Bank said in a note on Wednesday.
"In today's EIA report the market will also focus on Cushing and whether stock levels there has started to stabilise after slumping to a three-year low," the bank's strategy team wrote.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More