Oil Slumps Below $85 With US Inventories Seen Rising Before Fed

(Bloomberg) — Oil extended a decline, with industry data pointing to a rise in US crude inventories ahead of a Federal Reserve policy decision due later.

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Benchmark Brent crude fell below $85 a barrel for the first time since the middle of March, while West Texas Intermediate was below $81. US crude stockpiles increased by 4.9 million barrels last week, according to the American Petroleum Institute. It would be the fifth expansion in six weeks if confirmed by official data later Wednesday.

The data added a bearish picture as traders monitor prospects for a cease-fire in the Middle East, which could de-escalate tensions and weigh on oil prices. There were more bearish Brent options traded than bullish ones for the first time since March on Tuesday, an indication that traders are becoming less concerned about geopolitical risks.

Wednesday also marks the Labor Day holiday in many countries, meaning early trading volumes were thinner than usual.

Crude is starting May on the back foot after a rocky April that saw it surge to the highest since October following Iran’s unprecedented attack on Israel. While OPEC+ supply curbs are also supporting prices, uncertainty over US monetary policy and softness in fuel markets including diesel are adding to headwinds. Economic data on Tuesday reinforced bets Fed officials will keep rates steady at a two-decade high.

“The potential for a cease-fire agreement between Israel and Hamas has eased concerns of an escalation of the conflict and any possible disruptions to supply,” ANZ Banking Group Ltd. analysts Brian Martin and Daniel Hynes said in a note. “Continued signs of inflation also raised concerns about demand for crude oil. This comes ahead of the US driving season, where demand for gasoline rises strongly.”

Meanwhile, in another sign of bearishness, contracts are testing their 50-day moving averages. A significant break below those levels could spur further selling for prices.

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