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Oil Retreats Expecting Fed Minutes, Inventory Data

Ending a several-day-running-streak, oil prices are retreating from five-week-highs on Wednesday as the U.S. dollar bounced back with traders betting on hawkish Fed minutes and awaiting the official U.S. inventories report later today.

At the time of writing, WTI Crude was down 0.34 percent to US$46.42 and the Brent Crude price was falling 0.04 percent to US$49.21.

Investors are waiting to see hints of upcoming interest rate hikes in the Federal Reserve’s minutes of its July meeting, and more are betting on a September rise.

In July, the Fed kept interest rates unchanged, but said: “Near-term risks to the economic outlook have diminished”.

Although the Fed stopped short of any signals on an imminent rise, Fed officials commented on possible rises on Tuesday, which raised expectations for a hike this year, some say as imminent as in September.

Oil prices – sensitive to any report, speculation or rumor – have recently recovered from the low-forty-even-below-forty-dollar territory they touched two weeks ago, amid speculation that OPEC may decide on some kind of a production cap and amid reports of high production and supply. Despite the fact that many analysts do not believe the cartel and non-OPEC partners will reach a production freeze deal in Algiers in late September, oil prices were maintaining gains until Tuesday.

Earlier this week, Morgan Stanley predicted – quite accurately– that the oil rally might end on Wednesday because it was driven by traders covering bearish bets.

The downbeat oil prices on early Wednesday, however, are indicative of the investor expectations of the official U.S. inventory data by the Energy Information Administration (EIA) expected later today before the Fed minutes.

Yesterday, the American Petroleum Institute (API) said that U.S. crude oil inventories were down just over 1 million barrels for the week ended 12 August, but U.S. gasoline inventories were up over 2 million barrels in the biggest increase in six months.

Now we’ll have to see whether the EIA figures will contradict API projections – which they often do – or confirm the figures. Expectations are that the EIA will report a rise of around 300,000 barrels in U.S. crude stockpiles, while gasoline inventories are expected to have dropped by about 1.64 million barrels.

By Tsvetana Paraskova for Oilprice.com

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