Crude oil futures lower as supply tightness eases, market eyes Fed meeting for cues

0600 GMT: Crude oil futures moved lower during mid-afternoon trade in Asia Sept. 20 as supply concerns subsided on an increase in the US rig count amid recovery in the Gulf of Mexico, and as investors awaited the US Federal Reserve meeting in coming days for more pricing cues.

At 2 pm Singapore time (0600 GMT), the ICE November Brent futures contract was down 39 cents (0.52%) from the previous close at $74.95/b, while the NYMEX October light sweet crude contract was down 47 cents (0.65%) at $71.50/b.

"After a fourth weekly gain, crude prices slumped after oil rig counts delivered their biggest increase in a month and as risk aversion sent the dollar higher," said Edward Moya, OANDA's senior market analyst, the Americas, in a note.

Supply woes seem to be easing as Baker Hughes reported the US oil and gas rig count, a gauge of future output, at 512 Sept. 17, adding nine rigs in the past week and taking the total to the highest since April 2020.

Production and refining capacities in the Gulf of Mexico continue to push toward full recovery. The US Bureau of Safety and Environmental Enforcement reported Sept. 17 that 422,078 b/d or 23.19% of the Gulf's oil production remains offline, and 765,540 b/d or 34.43% of gas production -- figures that were much improved from last week, when 66.36% of oil production and 75.55% of gas production was offline.

A stronger dollar also placed downward pressure on prices. At 2 pm Singapore time (0600 GMT), the ICE US Dollar Index was trading at 93.295, up 0.128% from the previous close. A stronger dollar results in dollar-denominated assets like oil futures becoming less attractive to investors holding foreign currencies, thus lowering demand for these assets.

"The US dollar as reflected in the Dollar Index at a three-week high. Better-than-expected US retail sales data has boosted the dollar amid expectations the US Federal Reserve will begin reducing asset purchases later this year," said Avtar Sandu, Phillip Futures senior manager commodities said in a note.

The market will be closely watching the US Federal Open Market Committee meeting over Sept. 21-22 for clues on the pace of the Federal Reserve's tapering of its bond buying program. Fed Chairman Jerome Powell signaled last month that it would be appropriate for the tapering to occur by the end of this year, which would buoy interest rates and strengthen the US dollar, putting downward pressure on energy prices.

Going forward, some analysts anticipate that prices will remain rangebound given the prevailing market uncertainties.

"On the one hand, there is the sentiment that demand is eventually going to pick up. But on the other hand, people are also waiting to see how harsh tapering policies will be. As things stand, I see oil trading in the $70-$75/b band as investors look for fresh cues," Sukrit Vijayakar, Director at Trifecta Consultants, told S&P Global Platts.