WTI recovers $85.00 despite central banks’ hawkish week, EIA inventory data at a glance
- Oil prices broke above the critical $85.00 hurdle as the “value buy” component kicked in.
- The unchanged PBOC policy will keep China’s oil demand intact.
- The Fed’s policy and guidance on interest rates will remain in focus.
West Texas Intermediate (WTI) futures on NYMEX rebounded strongly after slipping to near $82.00 on Monday. The asset experienced a unique buy pattern and recaptured the critical $85.00 hurdle. Oil prices have now turned sideways in the $84.78-85.63 range and are preparing for a further rise towards the $90.00 round resistance.
Investors shrugged off clouds of uncertainty over oil demand ahead of an interest rate decision by various members of the G-7 group. To rein in runaway inflation, central banks are braced for a new round of rate hikes and hawkish lending rate stances. Undoubtedly, the decision will reduce oil demand projections.
A component of value buying has resulted in reactive buying for Oil, but this requires significant catalysts to sustain the rally.
Meanwhile, the People’s Bank of China (PBOC) kept its monetary policy unchanged. The central bank kept its one-year and five-year prime rates (PLR) stable. A rate cut was expected by market participants as the economy is strict on its path of accelerating the growth rate. Moreover, China’s inflation rate fell in August, which reinforced expectations of a dovish attitude. China is the world’s largest oil importer and a stable monetary policy will keep oil demand intact.
Going forward, investors will focus on the Federal Reserve (Fed) interest rate decision. The Fed is expected to raise interest rates by a third straight hike of 75 basis points (bps). This could significantly shake the oil bulls.
In addition, oil inventory data from the Energy Information Administration (EIA) will be of utmost importance. The agency shows an accumulation of oil inventories for two weeks.