WTI selloff intensifies amid growth concerns ahead of FOMC meeting
10:29, 3 May 2023
Crude oil continued to sell off in Tuesday’s session with both US and Brent crude finishing the day dropping over 5%. Concerns about growth are front and centre as traders await the FOMC’s latest monetary policy decision this evening. US crude (WTI) is closing in on the $70 mark, its lowest level since March 27th, as it re-enters the SPR replenishment range ($72-$63).
US Crude (WTI) daily chart
There is little doubt in markets that the Fed will hike another 25bps at its May meeting this evening and so that is keeping risk appetite subdued. Add to that the fact that the ongoing US banking crisis has traders worried about stability in the banking system, and also the latest numbers from China, one of the top crude importers in the world, showing sluggish manufacturing activity. The European Central Bank (ECB) is also expected to hike rates on Thursday which will put further pressure on European companies and the spending capacity of consumers.
The demand forecast for crude remains weak because of these concerns despite falling inventories in the US. Expectations about the future growth potential in the US economy will be key to determine the momentum in crude oil, starting with the outcome of the FOMC meeting this evening. A hawkish fed may lead to renewed bullish momentum in the US dollar, with the potential to send WTI back towards the $68 mark. On the contrary, if traders perceive some weakness in the central bank’s ability to keep rates elevated throughout 2023, then the dollar is likely to reverse the recent gains as risk appetite potentially pushes WTI back above $75 per barrel.
Focus will also be on the latest jobs data from the US out this Friday as there is also a good potential for volatility out of that event, especially if the meeting this evening fails to provide any significant update or change to the policy outlook.