(Bloomberg) -- Oil was steady as an industry report signaled a big drop in US crude inventories ahead of a Federal Reserve meeting where the central bank is expected to sharply hike interest rates.
West Texas Intermediate futures traded near $95 a barrel after closing 1.8% lower in the previous session. The American Petroleum Institute reported crude stockpiles fell by 4.04 million barrels last week, according to people familiar with the figures. If confirmed by the Energy Information Administration later Wednesday, it would be the largest draw since the end of May.
The Fed is expected to approve another large rate increase on Wednesday to combat rampant inflation, escalating concerns that the US may be heading for a recession. Fears over an economic slowdown have rippled through commodities and overshadowed signs of a tight physical crude market.
“If the Fed takes an even more hawkish view amid ongoing inflationary pressures, then there could be some downward pressure on oil prices in the short term,” said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “Despite concerns of weaker economic growth, the supply side issues are likely to keep the market tight.”
Oil is up more than 25% this year, although the market has been whipsawed over recent months amid low liquidity. Majors including Shell Plc and Exxon Mobil Corp. are scheduled to report second quarter earnings this week and are expected to post bumper profits after energy prices surged.
US gasoline stockpiles dropped by 1.06 million barrels last week, while crude inventories rose at the key storage hub at Cushing, Oklahoma, the API said. The EIA is expected to report nationwide crude supplies fell by 1.5 million barrels, according to the median estimate in a Bloomberg survey.
The Biden administration laid out plans to refill the nation’s depleted oil reserves, which have been tapped to counter soaring gasoline prices. The Energy Department plans to replenish the Strategic Petroleum Reserve with oil purchases that are likely to begin after fiscal 2023 and could be made via fixed-price contracts, an administration official said Tuesday.
A group of Republican senators including Marco Rubio introduced a bill that would sanction China’s purchases of oil from Russia, but the proposal faces long odds of getting a vote in the Democratic-controlled Senate. It also runs counter to Biden administration policy, which aims to keep Russian crude flowing while at the same time limiting Russia’s energy revenue.