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Oil Steadies After Drop as Chinese Demand, Fed Decision in Focus - BLOOMBERG

JANUARY 31, 2023

(Bloomberg) -- Oil steadied after slipping to a three-week low on Monday as traders waited for more clues on Chinese demand, a midweek policy decision from the Federal Reserve and the latest guidance from OPEC+.

West Texas Intermediate held near $78 a barrel after retreating by more than 2% on Monday’s session. China’s reopening after its harsh Covid Zero policy was abandoned has boosted optimism that consumption will pick up as mobility improves, and purchasing managers indexes due Tuesday will provide more evidence of how quickly Asia’s biggest economy is recovering.

While the Federal Reserve is expected to raise interest rates again in its first meeting of 2023 on Wednesday, a smaller hike of 25 basis points is widely expected. That, and comments from Chair Jerome Powell, may signal that the US central bank’s monetary tightening cycle could be close to complete.

Crude has endured a bumpy ride in January, and is on course for a third consecutive monthly decline as concerns about a US slowdown overshadowed optimism on China. An advisory committee of ministers from the Organization of Petroleum Exporting Countries and its allies will review production policy later this week, although no change is expected. Its session comes ahead of the next round of sanctions and caps on Russian energy flows.

“The Fed is certainly the main driver of sentiment this week,” said Vandana Hari, founder of Vanda Insights. “Crude continues to track the broader financial markets as supply-demand fundamentals appear largely balanced.”

Still, bullish signals remain. Global benchmark Brent’s prompt spread  — the gap between its two nearest contracts — has widened further in backwardation ahead of March’s expiration later Tuesday. The gap was 40 cents a barrel, up from 3 cents at the start of last week. Also, money managers increased their net-long Brent positions to the largest in nearly 11 months. 


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