Crude oil prices edged lower on Wednesday ahead of the Fed interest rate decision. While the market is increasingly confident of an interest rate cut of 25 basis points, a hawkish guidance, or at least a non-committal position, is highly likely. These expectations, coupled with the overwhelming concerns of a supply glut in coming months, are fueling the selling pressure. At the time of writing, the benchmark for global oil was at a two-week low at $61.48 a barrel.
What’s fueling the crude oil price downtrend
Crude oil price remains on a downtrend amid the overwhelming concerns over a supply glut in 2026. According to the International Energy Agency (IEA), the global market is expected to report a record surplus of over 4 million barrels per day in the coming year, equating to about 4% of the world’s oil consumption. While the glut may come in lower than that, analysts and investors are already pricing in a hefty oversupply.
Based on these expectations, it will be interesting to see how producers attempt to mitigate the supply glut. Intentional efforts by OPEC+ nations and non-OPEC producers like the US in 2026 may help alleviate the selling pressure. Besides, aggressive buying from China would improve the situation from the demand side.
Meanwhile, the supply/demand imbalance is already weighing on crude oil prices. Brent, the benchmark for global oil prices, is down by close to 20% ytd; placing it on track to record its worst year since the COVID-19 pandemic.
At the same time, investors are eyeing the Russia-Ukraine talks and the Fed interest rate decision. In regard to the latter, financial markets expect the US central bank to cut interest rates by 25 basis points. Notably, this decision comes amid the policymakers’ differing opinions and gaps in the country’s crucial economic data.
More importantly, investors and analysts alike will be keen on the Fed’s tone in the FOMC statement. A non-committal or hawkish position will likely weigh on crude oil demand while fueling a rebound in the US dollar.
At the time of writing, the dollar index was at $99.13, having traded within a tight range for a week now. While it remains under selling pressure, it has held steady above the 6-week-long support zone of $98.60. At the same time, the benchmark 10-year Treasury yields extended previous gains to trade at a three-month high; further strengthening the US dollar. Notably, a stronger greenback renders crude oil more expensive for buyers holding foreign currencies.
As of the Russia-Ukraine peace talks, the market is riding on hopes that the two warring countries may soon reach a deal. That would in turn ease US sanctions on Russia, releasing oil supplies from the third-largest producer and increasing the oversupply concerns.
Brent crude oil price technical analysis
UKOIL price chart | Source: TradingView
Brent oil price edged lower on Wednesday, marking the third consecutive session in the red and reversing the gains recorded over the past two weeks. At the time of writing, it was at a two-week low of $61.48.
A look at its daily chart hints at the continuation of the downtrend as it continues to trade below the short-term 25-day EMA and the medium-term 50-day MA. Besides, it continues to trade within the months-long bearish channel.
In the near-term, the range between the 50-day EMA at $63.80 and the support at $61 will be worth watching. In reaction to the FOMC statement, the bears may have a chance to pull Brent oil price further down to a 7-month low at $60. On the upside, a possible rebound would likely be curbed at the crucial resistance zone of $64.50.
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