WTI meanders below $70.00, upside capped by 200DMA for now ahead of inventories, Fed

Oil prices have been ebbing lower on Wednesday and front-month WTI futures currently trade close to the $70.00 per barrel, up from earlier session lows in the $69.30s, but still a few cents lower on the day. The upside is currently being capped by the presence of the 200-day moving average at $70.39 and amid a broadly subdued market tone ahead of Wednesday’s crucial Fed policy announcement that will likely set the macro tone for the rest of the week.

Just as the 200DMA above $70.00 is likely to continue to cap the price action in the coming hours, WTI seems to have carved out a floor in the mid-$69.00s, an area that coincides with early December highs, for now. But crude oil traders would do well to keep an eye on the latest weekly official US inventory report at 1530GMT. Private weekly API inventory data released on Tuesday pointed to a smaller than expected 0.815M barrel draw in crude oil stocks, which seemed to pressure oil prices at the time, despite a surprise draw in distillate inventories and a smaller than expected rise in gasoline stocks.

In terms of the major themes driving crude oil markets right now; uncertainty regarding the hit to demand from the spread of Omicron remains elevated and traders have suggested this means volatility may remain elevated as well. Some highlighted the disparity between the recently published monthly OPEC oil market report versus the comparatively bearish IEA monthly report.

According to analysts at ANZ, "the IEA's bearish view on the market was in stark contrast to OPEC's more positive view when it released its monthly outlook earlier this week… (which) suggests volatility is likely to remain high in the short term”. Oil prices are thus likely to remain skittish on Omicron lockdown headlines in the coming weeks, with the WHO warning the peak of the global outbreak remains a way off.