Oil holds soft tone on oversupply concerns, markets await Fed

Oil prices maintained losses in Asian trade on Wednesday, after dropping more than 3% to six-month lows the previous session due to oversupply and demand worries.

Brent oil futures for February fell a penny to $73.23 a barrel by 0207 GMT. January West Texas Intermediate oil futures in the United States fell 2 cents to $68.59 a barrel.

The market fell in overnight trade as stronger-than-expected November inflation numbers in the United States supported the idea that the Federal Reserve was unlikely to decrease interest rates early next year, weighing on demand.

Meanwhile, the weekly average of Russian crude exports increased to the highest level since July, according to ANZ analysts, adding to oversupply fears and casting additional doubt on the recent output cut deal reached by the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+.

In its most recent Short-Term Energy Outlook report, the US Energy Information Administration boosted its prediction for supply in 2023 by 300,000 barrels per day from its previous report to 12.93 million barrels per day.

The negative view suggests that oil will continue to decrease this week, extending a seven-week losing streak.

A policy meeting by the U.S. central bank that concludes later on Wednesday will determine the direction of markets, said Tina Teng, a market analyst with CMC Markets. “A more hawkish-than-expected stance by the Fed may cause a further drop in crude prices,” Teng said.

The Federal Reserve is widely expected to keep rates on hold. However, investors will focus on Fed officials’ views on the economy and where they see interest rates in the coming quarters.

The United Nations on Wednesday passed a resolution calling for an immediate ceasefire in Gaza, with President Joe Biden warning that Israel was starting to lose international support because of the killing of civilians.

COP28 entered the final hours of negotiations on Wednesday morning as governments continued to wrangle over the future of oil and other fossil fuels. A draft deal on Monday had been criticised for failing to call for a phase-out of fossil fuels.