WTI holds in bullish territory post Fed

• WTI bulls hold off as US dollar rises post-Fed.
• EIA report showed a big drop in US oil inventories.

At the time of writing, West Texas Intermediate (WTI) crude oil is trading at $71.96 in a tight post-Fed volatility day range of between $71.89 and $71.99. 

The markets were in the risk-on mood on Wednesday, that was before the Federal Reserve tightened the screw on financial markets in a hawkish outcome of the Federal Open Market Committee's two-day meeting. 

Prior to the Fed's statement and chair's presser, WTI CFDs on a spot basis were rising from the $71.30s to a high of $72.20. There was a knee-jerk bid to the highs of the day at $72.28 before the price dropped to test $71.80 support. 

Evergrande risk fades, for now

Initially, the markets seemed to be cheering news that Evergrande was not going to blow over into a global financial debt crisis and instead remain isolated to local markets and dealt with without hugely negative and widespread ramifications. However, the situation is fluid and highly uncertain. 

The Chinese central bank, PBoC, also injected cash into the banking system, temporarily soothing fears of imminent contagion from the debt-laden property developer. However, $300 billion in liabilities is owed to countless banks, lenders, retail investors and suppliers. This means any impact would be complex and uncertain. There has been no mention of its plans for another bond payment on Thursday and one next week. 

US dollar perks up on Fed

Meanwhile, the US dollar was finally attractive to investors when the volatility died down and markets came into line with a more hawkish tilt at the Fed. November has been marked as the most likely month for which tapering will begin. There is even a 50% chance that a rate hike might come sooner than expected in 2022. 

''Half of Fed policymakers see lift-off in fed funds rate from zero in 2022, vs. 7 of 18 in June forecast; all but one see liftoff by end-2023 (vs. 13 in June)."

Meanwhile, on Wednesday a report showed a big drop in US oil inventories. The Energy Information Administration reported US oil inventories fell by 3.5-million barrels last week, more than the 3.1 million barrel draw expected, according to a Reuters poll, while gasoline inventories rose by 3.5-million barrels.

Longer-term, as the markets wild card, nuclear talks are set to resume in the next few weeks. This will yet again raise questions as to whether Iranian crude would return to markets.