WTI recaptures $85.00 despite hawkish central banks week, EIA inventories data in focus

• Oil prices have overstepped the critical hurdle of $85.00 as the ‘value buy’ component kicked in.
• PBOCs unchanged policy will keep the oil demand in China intact.
• Fed policy and guidance on interest rates will remain in focus.

West Texas Intermediate (WTI), futures on NYMEX, have bounced back sharply after slipping to near $82.00 on Monday. The asset has witnessed a single tail buying structure and has recaptured the critical hurdle of $85.00. The oil prices have turned sideways now in the $84.78-85.63 range and are preparing for further upside towards the round-level resistance of $90.00.

Investors have shrugged off the clouds of uncertainty over the oil demand ahead of an interest rate decision by various members of the G-7 group. To tame the roaring inflation, central banks are prepared for a fresh rate hike cycle and hawkish guidance on borrowing rates. No doubt, the decision will trim the projections for oil demand.

A value buy component has resulted in a responsive buying for the oil but that needs meaningful catalysts to support the rally.

Meanwhile, the People’s Bank of China (PBOC) has kept its monetary policy unchanged. The central bank has kept its one-year and five-year Prime Lending Rate (PLR) stable. A rate cut was expected by the market participants as the economy is strict on its path of spurting the growth rate. Also, China’s inflation rate slipped in August, which bolstered the expectations of a dovish stance. China is the world’s largest importer of oil and a stable monetary policy will keep the oil demand intact.

Going forwards, investors’ focus will be on the interest rate decision by the Federal Reserve (Fed). The Fed is expected to step up its interest rates by a third consecutive 75 basis point (bps) interest rate hike. This may shake the oil bulls significantly.

Also, the oil stockpiles data by the Energy Information Administration (EIA) will be of utmost importance. The agency has been displaying a build-up of oil inventories for the past two weeks.