Oil prices hit a five-month low ahead of the Fed, and US inventories provide little comfort

Oil prices fell further in Asian trade on Wednesday, reaching five-month lows as traders braced for the year's final Federal Reserve meeting, while reports of a fall in US stocks provided little support.

Concerns about lower demand, dwindling supplies, and higher-for-longer interest rates drove significant drops in oil prices this week, as markets remained wary of petroleum after the Organization of Petroleum Exporting Countries and allies (OPEC+) announced disappointing output cutbacks for 2024.

Record-high US output and mounting concerns about a slowdown in Chinese demand weighed on crude, as did uncertainty ahead of additional Fed monetary policy signals.

Brent oil prices for February delivery lost 0.2% to $73.09 per barrel by 20:37 ET (01:37 GMT), while West Texas Intermediate crude futures fell 0.2% to $68.71 per barrel. Both contracts have reached their lowest levels since July.

The Energy Information Administration's (EIA) lackluster view on oil prices also hurt, with the EIA cutting its 2024 Brent projection by $10 a barrel to $83 a barrel.

US inventories are decreasing, while gasoline stocks are increasing- API

The American Petroleum Institute (API) reported that US oil inventories declined by a larger-than-expected margin in the week ending December 8.

However, the potential pullback comes after several weeks of solid builds. The API report also revealed an unusual 5.8 million barrel increase in gasoline stocks, indicating a decline in US fuel demand.

The API data normally precedes a similar figure from official inventory data, which is anticipated later in the day and is likely to indicate a 1.5 million barrel draw.

Gasoline inventories are forecast to rise by 2.4 million barrels, while US output is expected to continue near record levels.

High US output, despite a declining rig count, has also been a source of discontent for oil markets, as the US expanded supply to fill a void left by OPEC.

The Fed is keeping an eye on things as US inflation remains stubborn.

The release of November consumer price index data in the United States on Tuesday raised concerns that the Fed will maintain its hawkish tone at the conclusion of its final meeting for 2023 later that day.

While rates are widely expected to remain unchanged, the central bank's view beyond 2024, particularly any intentions to lower interest rates, will be a crucial topic of focus.

Given recent hints of sticky inflation and labor market resilience, markets have reduced expectations for the Fed to drop interest rates soon.