Brent sheds after Fed keeps interest rates unchanged

The front-month ICE Brent contract moved $0.91/bbl lower on the day, to trade at $85.89/bbl at 09.00 GMT.

PHOTO: Steel oil pipes from refinery. Getty Images

Upward pressure:

A drop in crude inventories in the US has put some upward pressure on the price of Brent crude. Commercial crude oil inventories in the US fell by 1.95 million bbls to 445 million bbls on 15 March, driven by rising refining activity, according to Energy Information Administration (EIA) data. The decline in crude stocks also signals an uptick in demand.

The unexpected weekly draw in crude inventories reported by the EIA yesterday, combined with a significant decrease in gasoline stocks, have helped to stabilise crude prices during intraday trading, VANDA Insights founder and market analyst Vandana Hari noted.

Brent's gains have been supported further by supply concerns resulting from heightened geopolitical tensions in the Middle East and the conflict between Ukraine and Russia.

“Concerns of tight supplies while demand conditions are still holding up” have contributed to upward pressure on Brent futures, head of FX strategy at Saxo Bank Charu Chanana observed.

Downward pressure:

Brent faced downward pressure following the decision by the US Federal Reserve (Fed) to maintain its interest rates within the range of 5.25-5.50% during its recently concluded two-day meeting, keeping them unchanged from previous levels.

The Fed has committed to three interest rate cuts this year, but it has reduced its projected rate cuts for 2025 from four to three.

The anticipation of prolonged higher interest rates is expected to pose challenges for risky assets, including the oil market, according to ANZ Bank’s senior commodity strategist Daniel Hynes.

Higher interest rates typically lead to a stronger US dollar, which can potentially dampen the demand for dollar-denominated commodities such as oil.

By Tuhin Roy

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