Oil Prices Pull Back Ahead Of Key Fed Interest Rate Call

Oil prices slipped in early trading on Wednesday as investors braced themselves for the outcome of the Federal Open Market Committee meeting.

Benchmark Brent crude prices fell 0.5% to $68.16 per barrel, while U.S. West Texas Intermediate prices also declined 0.5% to $64.21 per barrel at 4.13 a.m. ET. Retail sentiment on Stocktwits about the United States Oil Fund (USO) was in the 'bullish' territory at the time of writing.

Both contracts gained over 1% in the previous session as Ukrainian drone attacks threatened to disrupt oil supplies from Russia. According to a Reuters News report, Russia's oil pipeline Transneft had warned producers that they might have to cut output as several refineries went online.

ING Commodities analysts noted that recent claims by Ukraine that it attacked the Saratov refinery in its latest strike on Russian energy facilities might help create a floor for oil prices at lower levels. 

However, oil prices were under pressure as concerns over U.S. demand mounted after mixed fuel inventory data. According to American Petroleum Institute data, U.S. gasoline inventories fell by 700,000 barrels, while distillate stocks increased by 1.9 million barrels.

Oil traders are eagerly awaiting the Federal Reserve's decision on benchmark interest rates, expected to be announced later on Wednesday. The U.S. central bank is widely expected to deliver a 25-basis-point rate cut amid weakness in the labor market.

“The focus is on whether there will be two or three rate cuts this year,” IG Commodities analyst Tony Sycamore said in a note, including the probable cut on Wednesday.“Fed Chair Jerome Powell's tone on economic risks is crucial. Any 'buy the rumour, sell the news' effect may be short-lived, as further cuts in October and December remain possible.”

Separately, the U.S. and India have begun their trade talks, with President Donald Trump speaking with Prime Minister Narendra Modi over the phone. India is currently facing a 50% tariff rate, primarily due to its purchases of Russian oil.

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