Oil prices kept to a tight range on Wednesday after retreating in January, with markets now seeking more cues from a Federal Reserve meeting and a potential economic recovery in China.
Signs of another large build in U.S. inventories weighed on crude markets, after data from the American Petroleum Institute showed that U.S. crude inventories grew 6.3 million barrels in the week to January 27, against expectations for a draw of 1 million barrels.
The reading potentially heralds a similar trend in official data due later in the day, which could signal a near-term oil supply glut in U.S. markets.
Brent oil futures rose 0.1% to $85.54 a barrel, while West Texas Intermediate crude futures rose 0.2% to $79.07 a barrel by 21:20 ET (02:20 GMT). Both contracts rallied over 1% on Tuesday after a volatile session, but ended January about 0.4% and 1.6% lower, respectively.
Chinese government data released this week showed that business activity rebounded sharply in January after the country relaxed most anti-COVID measures, indicating that the world’s largest oil importer was recovering from three years of intermittent lockdowns.
But a private survey showed on Wednesday that the country’s massive manufacturing sector was still struggling against continued headwinds from rising COVID-19 cases.
Focus is now squarely on a Federal Reserve meeting later in the day. While the central bank is expected to hike rates by a relatively smaller 25 basis points, its outlook on monetary policy will be closely watched, especially in light of recent data showing some resilience in the U.S. economy.
The dollar steadied in anticipation of the meeting, pressuring oil prices. Markets fear that any further rises in U.S. interest rates could weigh on economic growth and support the dollar, presenting a negative scenario for oil prices.
Markets are also awaiting a panel meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+), although the cartel is widely expected to maintain current production levels.
Central bank meetings in the UK and the euro zone are also expected this week, with both banks set to hike rates by 50 basis points each. Tightening monetary conditions in the two economies could potentially damage economic growth, hurting crude demand.