Title: Oil bounces higher ahead of Fed moves, EU sanctions on Russian oil

May 04, 2022 02:50AM ET

By: AnalysisWatch

Oil prices rallied Wednesday ahead of a U.S. Federal Reserve announcement and further European Union sanctions against Russia, offsetting demand concerns from China, the main importer.

On thin trading volume, Brent crude futures rose $1.46, or 1.4%, to $106.43 a barrel by 02:16 AM ET on China and Japan's closed holidays. West Texas Intermediate crude futures rose $1.59, or 1.6%, to $104.00 a barrel.

The gains were triggered by news Tuesday that the European Union would impose new sanctions on Russia over its war in Ukraine.

Investors are also waiting for an announcement from the Fed on Wednesday. It is expected to step up efforts to reduce high inflation by raising interest rates and reducing its balance sheet.

According to market sources citing figures from the American Petroleum Institute, crude oil and fuel inventories in the United States fell last week. Crude oil inventories fell by 3.5 million barrels in the week ending April 29, they said. That was more than the expected 800,000-barrel drop estimated in a Reuters poll.

Oil prices fell more than 2% on Tuesday on demand concerns stemming from China's extended COVID-19 freeze, which curtailed travel plans during the Labor Day vacation season.

Caroline Bain, chief commodity economist at Capital Economics, said in a note that the global manufacturing purchasing managers' index fell in April for the first time since June 2020, with China's lockdowns a major contributor.

The Organization of the Petroleum Exporting Countries and its allies are expected to stick to their policy of another monthly production increase on Thursday, despite the group known as OPEC+ falling short of its output targets between October and March, with the exception of February.