Oil rises ahead of interest rate decisions; oversupply fears linger. In anticipation of significant interest rate decisions and the release of inflation data, investors exercised caution on Tuesday, which led to a slight increase in oil prices. However, concerns about a supply glut and slower-than-expected demand growth limit gains.

As of 03:42 GMT, February’s Brent crude futures were up 26 cents, or 0.3%, to $76.29 a barrel, while January’s U.S. West Texas Intermediate oil futures were up 26 cents, or 0.4%, to $71.58 a barrel.

According to a note from I.G.’s market analyst, Yeap Jun Rong, “everyone’s focus will be on the US CPI data today to potentially set the tone for U.S. policymakers at their upcoming meeting.”

On Tuesday, the U.S. Consumer Price Index (CPI) data is due, and on Wednesday, the Federal Open Markets Committee (FOMC) will conclude its two-day monetary policy meeting.

Although it is largely anticipated that the U.S. Federal Reserve will keep interest rates unchanged on Wednesday, the November Fed minutes revealed that members were still wary about inflation being tenacious, opening the possibility of more tightening if necessary.

“Further inflation progress will be on watch to validate the effectiveness of current restrictive policies in place and give more room for the Federal Reserve (Fed) to consider rate cuts in 2024 if economic conditions worsen,” Yeap stated.

A cruise missile fired from Houthi-controlled Yemen targeted a commercial chemical tanker, inflicting damage and a fire but no injuries, according to two U.S. defense sources who spoke to Reuters on Monday. This incident also helped to boost oil prices.

The attack is among the most recent that the Houthis, who support Iran, have carried out on ships in the Red Sea, raising the geopolitical tension in the area and the danger to tanker safety in crucial commerce channels.

Although the OPEC+ group promised to reduce production by 2.2 million barrels per day (bpd) for the first quarter of 2024, oil investors are still skeptical that this would result in a decrease in overall supply since they believe that non-OPEC nations’ output increases will result in surplus supply the following year.

Analysts and traders expressed concern that the voluntary cut would not last long enough because actual and futures prices for crude oil are beginning to exhibit symptoms of excess before the cut is put into effect.

“While gains across other non-OPEC producers have been unexpectedly large, growth at U.S. shale oil operations continues to surprise on the upside,” ANZ Research analysts wrote in a note.

For the first several months of 2024, WTI and Brent are in a contango market structure, where forward-looking contracts are worth less than forward-looking ones. This suggests that investors believe there is a sufficient supply of petroleum for those months or a decreased demand for it.

“This week, when OPEC and the International Energy Agency deliver their monthly updates on the oil market, the market should receive a new perspective on fundamentals. According to ANZ analysts, the oil market also watches the COP28 talks.

OPEC members are opposing a coalition of more than 100 nations attempting to reach an agreement that would, for the first time, guarantee an end to the oil age.