Oil Steadies as Focus Shifts to US Stockpiles and Fed’s Decision

By Bloomberg

Mar 20, 2024

image is BloomburgMedia_SAL6UGDWRGG000_20-03-2024_07-52-19_638464896000000000.jpg

The Petroleos de Venezuela SA (PDVSA) Amuay oil refinery at the Paraguana Refinery Complex in Punto Fijo, Falcon State, Venezuela, on Saturday, Aug. 19, 2023. An ad-hoc board for Venezuela's oil company said it will extend a legal deadline on PDVSA's bonds, echoing an agreement for sovereign debt earlier this week. Photographer: Betty Laura Zapata/Bloomberg

(Bloomberg) -- Oil steadied after a two-day gain as an industry group flagged a fall in US crude stockpiles, and traders counted down to an interest-rate decision by the Federal Reserve that’ll shape the broader market tone.

Brent was little changed above $87 a barrel after a 2.4% advance in the week’s first two sessions lifted the benchmark to the highest close since late October. West Texas Intermediate was near $83. The American Petroleum Institute reported US crude holdings fell 1.5 million barrels, according to people familiar with the figures. Gasoline inventories were also seen contracting.

Jeff Currie, Carlyle’s chief strategy officer of energy pathways, says commodities are in a “classic late-cycle” rally. Speaking with Bloomberg Television, Currie says he expects oil to break out of its $70-$90 range.Source: Bloomberg

The US central bank is expected to hold rates steady for a fifth consecutive meeting later Wednesday, although policymakers may give hints about when they will be ready to pivot to easing. Carlyle Group LP’s Jeff Currie said that oil would rise well above the current consensus for $70 to $90 a barrel if the Fed moves to cut interest rates in the coming months.

Crude has climbed by about 13% this year, having broken out of a tight trading range that stifled volatility in the opening weeks of 2024. The advance has been supported by supply cuts delivered by OPEC+ and geopolitical risks, including Ukrainian drone strikes on Russian refineries. Broadly positive growth data from China earlier this week also drove gains.

“Despite some profit-taking ahead of the US Federal Open Market Committee meeting, any dips are expected to be short-lived,” said Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai. Attacks on Russian refining, OPEC+ cuts, and positive Chinese data are all supportive, he said.

Timespreads suggest traders are pricing in a tighter market. Among them, the spread between Brent’s two upcoming December contracts has gapped out to more than $5 a barrel in backwardation, a bullish pattern marked by the nearer price being more expensive. A month ago, it was less than $4. In addition, Brent option skews are at their least bearish in months.

By Yongchang Chin