U.S. crude oil prices fall ahead of pivotal Fed decision on interest rates

U.S. crude oil edged lower Wednesday with the Federal Reserve’s pivotal decision on interest rates later this afternoon unlikely to provide much in the way of support.

“In theory a rate cut is supportive for oil prices but we’ve seen prices rallying in recent days, likely pricing this in already, hence the response may be muted,” said Matt Smith, lead oil analyst for the Americas at Kpler.

The oil market has been rattled this month by worries about a growing imbalance between supply and demand. The U.S. benchmark is down about 13% in the third quarter, while global benchmark Brent has fallen about 15%.

Here are Wednesday’s energy prices:

• West Texas Intermediate October contract: $70.85 per barrel, down 34 cents, or 0.48%. Year to date, U.S. crude oil is down about 1%.
• Brent November contract: $73.35 per barrel, down 35 cents, or 0.47%. Year to date, the global benchmark has fallen more than 4%.
• RBOB Gasoline October contract: $1.9969 per gallon, down 0.25%. Year to date, gasoline has dropped about 5%.
• Natural Gas October contract: $2.357 per thousand cubic feet, up 1.42%. Year to date, gas has pulled back more than 6%.

Consumption in China is slowing as electric vehicle sales surge in the world’s largest crude importer. At the same time, OPEC+ is expected to increase production in December as output in the U.S., Canada, Brazil and Guyana remains strong.

“We are not expecting fireworks in the sky following Fed rate cuts,” said Manish Raj, managing director of Velandera Energy Partners. 

“The Fed action is unlikely to suddenly spur demand, which has otherwise been soft,” Raj said. “Nobody is hitting the gas stations just because the Fed decides to cut the rates today.”

Andy Lipow, president of Lipow Oil Associates, said a quarter-point cut is probably already priced into the oil market. “A 50 basis point cut is slightly supportive of the oil market since it translates into a weaker dollar and stronger prices for dollar denominated commodities,” Lipow said.

Geopolitical tensions are also escalating in the Middle East again as fears grow that a major conflict between Israel and the Iran-backed militia Hezbollah is on the horizon. Hundreds of pagers exploded in Lebanon Tuesday in an attack targeting Hezbollah militia members.

Traders are also waiting for the latest data on U.S. crude oil inventories at 10:30 am ET.