Crude oil price hits $95 a barrel ahead of Fed meeting

Oil prices march up on supply deficit concerns as traders brace for central bank decisions

Brent crude futures continued their upward trend for the fourth consecutive session on Tuesday, reaching $95 per barrel, with U.S. crude benchmark West Texas Intermediate (WTI) futures topping the $92 mark. These price levels mark the highest point for both benchmarks in over ten months, primarily driven by expectations of an expanding market deficit in the fourth quarter, attributed to diminishing oil supply.

The US Energy Information Administration reported on Monday that oil production in key shale-producing regions of the United States is poised to decline for the third consecutive month, reaching 9.393 million barrels per day in October — its lowest level since May.

Simultaneously, Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, defended the measures taken by OPEC+ to restrict oil supply on Monday. He emphasized that these actions are aimed at providing guidance to stabilize the markets and prevent excessive volatility, especially considering global economic uncertainties and fluctuations in demand.

Earlier in the month, Saudi Arabia and Russia announced their decision to extend a combined cut of 1.3 million barrels per day in oil supply until the end of the year.

Traders are concerned that rising oil prices — a key influence on inflation readings worldwide — might hinder the efforts of central banks in the U.S. and Europe to control inflation. This situation could further strengthen the argument for these banks to maintain higher interest rates for an extended period, even as there are signs indicating a slowdown in global economic growth.

The upcoming policy announcement from the U.S. Federal Reserve is scheduled for Wednesday. The prevailing consensus in the market strongly suggests that the Fed will maintain the current interest rate target range, which stands at 5.25% to 5.5%.

However, there is a degree of uncertainty among traders regarding whether persistent inflationary pressures will prompt U.S. policymakers to consider a further rate hike before the end of this year. This uncertainty also raises questions about their intentions to reduce rates in 2024.

As per Markets.com analyst Neil Wilson’s take earlier in the week:

The Fed's dot plot is a chart that documents the projected key short-term interest rate of each Federal Reserve official. Within this plot, the dots indicate the anticipated midpoint of the federal funds rate at the conclusion of each calendar year — typically three years into the future — based on the officials' expectations regarding the evolution of the economy. The officials also include a dot representing their projection for the longer term, which signifies the "neutral rate of interest." This neutral rate is the point at which interest rates are neither stimulating nor constraining economic growth.

Each dot on the chart corresponds to a specific Federal Reserve official, ranging from Chairman Powell to board member Lael Brainard, and from New York Fed President John Williams to Chicago Fed President Charles Evans. The identities of the officials behind each dot remain anonymous, preserving the confidentiality of their individual projections.

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Brent price forecast: Brent oil price could move above $100 by year-end, say analysts

In his daily column on September 19, Markets.com Chief Market Analyst wrote:

Bloomberg Economics has previously suggested that, due to reduced sales volumes, Saudi Arabia may require oil prices to approach nearly $100 a barrel to finance Crown Prince Mohammed bin Salman's ambitious spending initiatives as part of Vision 2030 — an ambitious plan to overhaul the kingdom’s economy, which includes massive infrastructure projects such as the construction of a $500 billion city called Neon.

Blame Schieldrop, Chief Commodity Analyst at SEB, also said the Brent price was likely to move above the $100 mark in a report sent to industry website Rigzone:

The SEB analyst also noted that, while Dated Brent looks set to hit $100 per barrel “in not too long”, the bank’s analysts were skeptical “with respect to further price rises to $110-120 per barrel as oil product demand likely increasingly would start to hurt”.

In another Brent crude oil price forecast, energy-sector analysis firm Enverus Intelligence Research (EIR) said it has maintained that Brent prices may reach $100 per barrel by the end of this year “for several months”.

WTI price forecast: Crude projections revised upward

In its most recent short-term energy outlook (STEO) released last week, the U.S. Energy Information Administration (EIA) raised its forecasts for the average prices of Brent and WTI crude oil for both 2023 and 2024.

According to the latest STEO, the EIA anticipates that the average Brent spot price will be $84.46 per barrel this year and $88.22 per barrel next year. Additionally, it projects that WTI spot prices will average $79.65 per barrel in 2023 and $83.22 per barrel in 2024.

In its WTI price forecast as of September 19, economic data aggregator TradingEconomics noted that the commodity was expected to trade at $93.69/bbl by the end of this quarter, according to the platform’s global macro models and analysts' expectations. TradingEconomics’ 12-month forecast for WTI crude had the commodity trading at a potential price of $101.81/bbl by September 2024.

The results of a recent Reuters analyst poll, published on August 31, indicated that market observers saw WTI averaging $77.83 a barrel this year — above the previous month's $77.20 forecast. Those projections are yet to be updated in light of the Saudi Arabia-Russia supply cut.

At the time of writing, Brent crude oil front-month contracts trading at $95.64, while similar contracts for WTI crude oil are trading at $92.01, as per Marketwatch.

When considering commodities, crude oil spots and futures for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.