Crude oil prices moved higher early on Wednesday morning after dropping dramatically at the start of the week. Traders remain on edge as they await a statement from the Fed and keep a close eye on developments in the Middle East.
The Fed is expected to keep interest rates unchanged, which would be bullish for oil, with similar expectations from the European Central Bank, after a flash estimate of eurozone inflation suggested it had declined substantially in October.
On the bearish side, Brent crude posted its first monthly decline in four months, suggesting demand growth has been slower than it could have been, especially since the decline came despite the eruption of violence between Hamas and Israel with its associated risk of supply disruption.
The war premium remains, according to analysts, despite efforts to contain the conflict.
"Geopolitical risks remain and that seems to be offsetting some of the record production levels that are coming from the U.S.," OANDA senior analyst Edward Moya told Reuters.
The importance of these risks, however, appears to be fading: "Up until now, developments in the Middle East have yet to impact oil supply. In the absence of supply disruptions from the region, it is difficult to see a significant and sustained upside in prices," ING's Warren Patterson said on Tuesday.
"The geopolitical risk premium to oil is fading, which means the oil market's focus is likely to return to global demand and supply factors," Standard Chartered investment strategist Han Zhong Liang told Bloomberg.
Supply disruption weak spots right now are Iran and Venezuela. The U.S. has threatened to tighten its sanctions against Iran if it gets more involved in the Israel-Hamas war, which would cut Iranian oil supply to international markets.
Meanwhile, Venezuela's Supreme Court canceled the results of recently held primary elections for an opposition leader, which might prompt Washington to reconsider the sanction relief it recently granted to the Maduro government in exchange for a commitment to work together with the opposition to hold elections.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More