WTI falls further ahead of the Fed

• WTI bulls are under pressure as the bears turn up the heat into the Fed.
• Risk-off sentiment is making its way through to the energy markets.

West Texas Intermediate crude oil was under more pressure on Tuesday ahead of the outcome of a two-day meeting of the Federal Reserve's policy committee that started on Tuesday. 

Traders are in anticipation of another loaded rate hike to US interest rates in the face of high inflation. WTI was down by some 0.9% trading around $84.25 having fallen from a high of $86.10 and reaching a low of $83.04 on the day. 

The sentiment surrounding surging inflation and tighter monetary policy continues to weigh on the price of oil while the US dollar index DXY, which measures the currency against six counterparts, trades around 110.20, not far from a 20-year high of 110.79 hit in trade of September. 7. 

The risk-off sentiment is also contributing to a higher US dollar in the face of the aggressive tightening path that global banks are on as they try to contain uncomfortably high inflation, weighing on demand for the black gold. 

A slew of central banks will meet this week and Fed funds futures have priced in a 79% chance of a 75-basis-point rate hike this week and a 21% probability of a 100-basis-point increase after August inflation rose more than expected.

Meanwhile, the Biden Administration's news that it will release a further 10 million barrels from US strategic reserves in November and a China push to export more refined products has likely been a factor in the price drop in oil.

On the other hand, analysts at TD Securities argued that ''with the weakness from positioning, sentiment and liquidity premia priced in, the market narrative is slowly shifting back toward structural tightness as winter looms on the horizon.''

''Marginally improving demand prospects amid Chinese re-opening and potential winter gas-oil substitution, along with long-term supply and spare capacity concerns, have seen spreads churning higher once again.

Indeed, our indicators still fundamentally suggest that markets are increasingly skeptical about the prospects for an immediate resolution on the Iran file as well, which translates into a resurgence in energy supply risks despite the ongoing slump in prices.''

''As markets reprice supply risk premia, the lack of liquidity could also exacerbate upside volatility in crude.''