Oil ticks higher amid unrest in Middle East

The WTI oil benchmark traded 1% higher on Wednesday, trying to return above the psychological $80 level as the fundamental situation seems bullish. Today’s Asian morning trading was marked by a rise in oil prices as a result of the news of suspected drone raids on Iranian sites, signaling a probable escalation in hostilities in the Middle East. 

Fed to slow its rate hikes

However, the most significant event of the day will be the FOMC meeting. Less than a 0.25% rate hike would be a major shock, and investors and market players would be most interested in hearing about the terminal rate level. The markets are pricing 50 basis points of rate hikes by June based on the general expectation that hawkish communication will arrive.

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Last week, oil prices jumped in reaction to encouraging US economic statistics. However, Treasury Secretary Janet Yellen has cautioned that a soft landing is far from assured and there is still a risk of recession.

Chinese demand to return soon

In other news, the Chinese government revealed data this week suggesting that corporate activity increased strongly in January following the relaxation of most anti-Covid measures. This implies that the world’s top oil importer is rebounding from three years of periodic lockdowns.

Combined with forecasts of a revival of oil demand in China, a lesser rate rise and any other hint that the Fed may be poised to scale back its strong inflation control tactics might provide oil prices considerable upward potential.

Additionally, after data from the American Petroleum Institute revealed that US oil stockpiles increased by 6.3 million barrels in the week ending January 27^th, crude markets remain skewed to the downside. This was in contrast to expectations of a fall of 1 million barrels.

OPEC+ to keep the current strategy

Furthermore, all attention will be on a summit of ministers from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as OPEC+, where producers are supposed to keep to November’s output objectives.

The ten OPEC countries pumped 920,000 barrels per day (bpd) less than their OPEC+-agreed-upon amounts in January, according to a Reuters poll. As long as oil trades above the broken long-term bearish trend line, the trend seems bullish, with the next target in the $82 region.

WTI 1D chart, source: tradingview.com, author’s analysis