29 Jan 2025

West Texas Intermediate (WTI) crude oil prices experienced a decline during the Asian trading session on Wednesday, partially reversing the modest recovery observed the previous day from a nearly three-week low. The commodity is currently trading around the $71.00 level, reflecting a decrease of over 0.25% for the day, and appears susceptible to continuing the downward trend that has been evident over the past two weeks.

Investor sentiment remains cautious due to US President Donald Trump’s warning of potential trade tariffs against Canada, China, and Mexico, effective February 1, which could negatively impact fuel demand. Additionally, the official Purchasing Managers' Index (PMI) data from China released on Monday indicated ongoing economic weakness in the world's second-largest economy and largest oil importer, further contributing to the downward pressure on crude oil prices. Furthermore, Trump's intentions to boost energy production in the US and calls for the Organization of Petroleum Exporting Countries to increase output to lower prices are also exerting pressure on the market.

The decline in Crude Oil prices is, however, somewhat mitigated by a build in US inventories that was slightly less than anticipated. The American Petroleum Institute reported on Tuesday that US oil inventories increased by 2.86 million barrels for the week ending January 24, which has led to heightened expectations for a similar trend in the official inventory data set to be released later this Wednesday. Traders appear hesitant to make bold directional moves and are choosing to remain on the sidelines as they await the outcome of the significant central bank event—the highly anticipated two-day FOMC monetary policy meeting.

The Federal Reserve (Fed) is largely expected to maintain its current position and uphold its hawkish approach. This is likely to support the US Dollar (USD) in retaining its overnight recovery gains from a one-month low, which may continue to pose challenges for the commodity. Additionally, the Fed's policy outlook is expected to significantly influence the near-term dynamics of USD pricing and could provide substantial momentum for Crude Oil prices later in the US trading session.