Oil Price Fundamental Daily Forecast – Supported by Supply Concerns Ahead of Fed Rate Hike Announcement

U.S. West Texas Intermediate and international-crude oil futures are edging higher on Wednesday after spiking nearly 3% higher on supply disruption concerns after Russian President Vladimir Putin announced a partial military mobilization, escalating the war in Ukraine.

Putin said he had signed a decree on partial mobilization beginning on Wednesday, saying he was defending Russian territories and that the West wanted to destroy the country, Reuters reported.

At 12:38 GMT, November WTI crude oil futures are trading $85.13, up $1.19 or +1.42% and December Brent crude oil is at $90.90, up $1.50 or +1.68%. On Tuesday, the United States Oil Fund ETF (USO) settled at $69.24, down $0.81 or -1.16%.

Keep in mind that no oil supply was lost following Putin’s proclamation so the spike to the upside was likely fueled by short-covering. Traders will take a more definitive position in the market once they see the West’s response to the move.

Traders Bracing for Federal Reserve Rate Hike

After the initial response to Putin, the markets have settled into a range as traders await the Federal Reserve’s highly anticipated 75 basis point rate hike. The recent price action suggests traders are pricing in an economic slowdown and lower demand in anticipation of rate hikes from several major central banks in their effort to drive down every asset subject to inflation.

With the market anticipating a three-quarters of a point rate hike, the surprise move by the Fed will be a 100 basis point rate hike. Traders are pricing in a 19% chance of this occurring. If the Fed does go big, expect a sharp break to the downside.

Furthermore, it’s not just the super-sized rate hike that will trigger a response by crude oil traders, the Fed projections could also move the market substantially. The Fed projections will offer a chance for investors to peak into the future since they will show how high the central bank will raise interest rates and how much officials expect their actions could affect the economy.

Additionally, Fed Chair Jerome Powell speaks at 18:30 GMT, and he is expected to emphasize the central bank will do what it takes to fight inflation and it is unlikely to reverse its rate hikes anytime soon.

API Reports Crude Oil, Product Inventory Builds Ahead of Weekly EIA Report

The American Petroleum Institute (API) reported a build this week for crude oil of 1.035 million barrels, while analysts predicted a bigger build of 2.321 million barrels.

The API also reported a build in gasoline inventories this week of 3.225 million barrels for the week ending September 16, compared to the previous week’s 3.23 million-barrel draw.

Distillate stocks saw a build of 1.538 million barrels for the week, on top of last week’s 1.75-million-barrel increase.

Today’s weekly EIA inventories report, due to be released at 14:30 GMT, is expected to show a 2.0 million build in crude oil inventories.

Short-Term Outlook

Putin’s aggressive move may have escalated the war, attracting the attention of crude oil speculators, but don’t expect much of a bullish reaction until traders can determine its effect on supply.

Additionally, once again I want to emphasize that a full-percentage point rate hike by the Fed could lead to heavy selling pressure. The reaction to a 75 basis point rate hike could be subdued.

Keep in mind that we could also see three volatile reactions today. The first to the rate hike, the second to Fed’s projections and the third to remarks from Fed Chair Powell.