Oil prices steady at 4-½ mth highs, US inventories seen shrinking

Investing.com-- Oil prices fell slightly in Asian trade on Wednesday as traders remained cautious before more cues from the Federal Reserve, although persistent signs of tight supplies kept prices pinned near four-month peaks. 

Brent oil futures expiring in May fell 0.3% to $87.13 a barrel, while West Texas Intermediate crude futures fell 0.3% to $82.45 a barrel by 20:37 ET (00:37 GMT). Both contracts remained close to their highest levels since November. 

Crude prices rallied sharply in recent sessions amid growing signs of tighter global supplies, especially after Ukrainian strikes on key Russian fuel refineries shut down production capacity. 

Additionally, some members of the Organization of Petroleum Exporting Countries signaled they will reduce production in the coming months, with the cartel also maintaining its current pace of supply cuts until June. 

On the demand front, U.S. crude demand is expected to increase as major refineries resume production after an extended break. Chinese fuel demand was also seen improving during the Lunar New Year holiday, although the pace of growth in China’s oil imports slowed. 

US inventories unexpectedly shrink - API 

Data from the American Petroleum Institute showed that U.S. crude inventories shrank 1.5 million barrels in the week to March 22, ducking expectations for a small build. 

The reading potentially marks a second straight week of draws in U.S. inventories, and comes amid increased refinery activity. A sustained drop in gasoline inventories also pointed to improving fuel demand after a winter lull. 

The API data usually heralds a similar reading from official inventory data, which is due later on Wednesday. A sustained decline in U.S. inventories also fed into expectations of tighter global supplies, especially amid rising gas prices in the world’s biggest fuel consumer. 

Fed, PMIs awaited for more economic cues 

Oil markets were now focused squarely on the conclusion of a Fed meeting later in the day, where the central bank is widely expected to keep rates on hold.

But any signals on interest rate cuts will be closely watched, with traders also on edge over a scaling down in rate cut expectations after hotter-than-expected inflation readings for the past three months. 

Beyond the Fed, a string of key purchasing managers index readings are also on tap in the coming days, and are expected to offer more cues on the global economy.