Oil Prices Drop As Market Awaits Fed’s Interest Rate Decision

Oil prices fell by 1% early on Wednesday ahead of the Fed meeting later today, which is expected to raise the key interest rate again in what could be the end of the aggressive money-tightening policies.

As of 7:40 a.m. EDT on Wednesday, WTI Crude was down 1.04% to below $79 per barrel - at $78.79 - after hitting $79 and a three-month high earlier this week. The international benchmark, Brent Crude, was trading down by 1.03% at $82.77, off the three-month high of above $83 per barrel reached on Tuesday.

At the July 26 meeting, the Fed is largely expected to raise interest rates, analysts concur. But many believe this could be the end of the money-tightening cycle. The oil market will be closely watching the Fed decision-and most of all, the comments by Fed Chair Jerome Powell accompanying the decision-for clues about the economy and the path to lowering inflation.

Aggressive interest rate hikes in recent months have had the oil market concerned about a recession that would weigh on oil demand. However, the latest inflation print in the U.S. from two weeks ago showed cooling consumer prices in June, which made more analysts optimistic that the rate-hike cycle could be close to its end.

Last week, Goldman Sachs cut its probability that a U.S. recession will start in the next 12 months further, from 25% to 20%, due to the fact that the recent economic data have reinforced the bank's confidence that "bringing inflation down to an acceptable level will not require a recession," wrote Jan Hatzius, head of Goldman Sachs Research and the firm's chief economist.

Commenting on today's Fed meeting, ING strategists said,

"Expectations are that the Federal Reserve will hike rates by 25bp, which could very well be the last hike in this cycle. However, any signal from the Fed that they have more to do will likely put some downward pressure on risk assets, including oil."

By Tsvetana Paraskova for Oilprice.com

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