Oil prices saw a slight decrease on Wednesday following indications of weak demand and the anticipation of a crucial interest rate decision by the U.S. Federal Reserve.

Brent crude oil, which had risen almost 3% earlier in the week, fell by 0.40% to $75.02 a barrel, while U.S. West Texas Intermediate (WTI) crude oil was down 0.42% at $69.38.

Data from the American Petroleum Institute released on Tuesday put the demand for oil into question after revealing an unexpected increase in U.S. crude inventories, contradicting analyst predictions of a decline.

Oil prices were also impacted by an unexpected rise in UK inflation in February, raising concerns of more interest rate hikes a day before the Bank of England’s latest interest rate decision.

The global market is waiting to assess the decision of the U.S. Federal Open Market Committee (FOMC) on interest rates later today to decipher the future direction of price action.

While the expected 25 basis point rate hike was a turnaround from the previously anticipated 50 basis point rate rise, analysts predict that it won’t have a significant impact on oil prices.

Craig Erlam, senior market analyst at OANDA, said, “It would be a big shock if the Fed reverted back to larger rate hikes now considering everything that’s happened this past couple of weeks.”

Last week, Brent prices hit their lowest levels since 2021 on concerns that the drop in bank shares could lead to a global recession and reduced fuel demand.

Global oil prices rebounded slightly in the early hours of Tuesday as concerns over banking section issues subside following UBS-Credit Suisse successful deal.

The deal eased investors confidence ahead of Federal Reserve meeting scheduled for tomorrow and boosted oil prices.

Brent crude oil, against which Nigerian oil is priced, traded rose to $73.84 per barrel while the U.S. West Texas Intermediate (WTI) crude oil gained 9 cents to $67.73 a barrel. A rebound from $3 decline recorded in the previous session.

The announcement of the UBS-Credit Suisse deal was followed by major central banks, including the U.S. Federal Reserve and European Central Bank, indicating that they would enhance market liquidity and support other banks.

Furthermore, officials with the G7 stated that they were unlikely to revise a $60-per-barrel price cap on Russian oil as planned. The officials said EU countries’ ambassadors were told by the European Commission over the weekend there was no pressing desire among the group for an immediate review.

Looking ahead, OPEC+, which includes the world’s top oil exporting countries and allies including Russia, is set for a meeting on April 3. The group agreed in October to cut oil production targets by 2 million barrels per day until the end of 2023.

Overall, the UBS-Credit Suisse deal and central bank support has helped ease investor concerns and stabilize oil prices. However, the upcoming OPEC+ meeting will be closely watched for any potential changes to oil production targets.

Rising global uncertainty concerning the rout in the banking system following the collapse of three major global banks has plunged oil prices to 15 months low on Monday as energy traders are worried that the U.S. central bank might raise interest rates even higher this week. 

Brent crude oil, against which Nigerian oil is priced, declined by 3.2% to $70.65 a barrel to settle at its lowest level since December 2021 in the early hours of Monday. While the U.S. West Texas Intermediate crude oil stood at $64.59 per barrel, down by 3.2%.

The decline in global energy market on Monday was despite UBS, Switzerland’s largest bank announcing it was acquiring troubled Credit Suisse, the country’s second-largest lender for $3 billion to prevent a banking crisis from spreading into other key sectors.

“The market focus is on current banking sector volatility and the potential for further rate hikes by the Fed,” said Baden Moore, National Australia Bank’s head of commodity research.

While the US Federal Reserve is expected to raise interest rates by 25 basis points on March 22, some executives are calling on the central bank to pause its monetary policy tightening for now but be ready to resume raising rates later.

The upcoming OPEC meeting is also another potential catalyst for the market outlook. “Further downside risk to prices increases the probability OPEC reduces production further to support prices,” Moore added, referring to the Organization of the Petroleum Exporting Countries.

Meanwhile, Goldman Sachs has cut its forecasts for Brent crude oil after prices plunged on banking and recession fears. The leading investment bank now expects brent oil to average $94 in the next 12 months and $97 in 2024, this is about $4 to $6 from $100 previously predicted.

Despite the uncertainty in the market, some analysts predict that prices will trend higher over the course of the year.