WTI edges higher beyond $79.00, investors awaits Fed decision

• WTI hovers around $79.20 a barrel, retreating from a three-month high of $79.90.
• The hope of a further Chinese stimulus plan, signs of a tighter oil market boost the WTI price.
• Further rate hikes, the fear of an economic slowdown in the Eurozone might cap the upside for WTI.
• Oil traders will closely watch the Federal Open Market Committee (FOMC) meeting.

Western Texas Intermediate (WTI), the US crude oil benchmark, is trading around the $79.20 mark so far this Wednesday after retreating from $79.90 a barrel, the highest since April 19. The hope of further stimulus plans in China and signs of a tighter oil market bolsters the momentum of WTI. However, the market could turn cautious on Wednesday while investors await the Federal Open Market Committee (FOMC) meeting. 

WTI has edged higher for four consecutive weeks, with supplies projected to tighten due to curbs by the Organisation of Petroleum Exporting Countries (OPEC) and allies such as Russia, known as OPEC+. The agreement by OPEC+ to limit supply through 2024 was announced in April and brings the total announced output reductions to over five million barrels per day (bpd), or approximately 5% of global oil production.

Furthermore, positive sentiment prevails ahead of the key events, bolstered by the hope of a further stimulus plan in China. On Tuesday, Chinese news agency Xinhua reported that Chinese policymakers would take up economic policy adjustments, strengthening confidence and mitigating risks. This, in turn, supports further upside in the WTI price.

On the other hand, the upside for WTI might be limited. The Federal Reserve (Fed) will announce its monetary policy decision on Wednesday. The Fed is widely anticipated to raise interest rates by a quarter percentage point to 5.25–5.50%. It’s worth noting that higher interest rates raise borrowing costs, which can slow the economy and diminish oil demand. 

Apart from this, the IFO Institute's monthly survey showed on Tuesday that the German Business Climate Index in July decreased from 88.6 to 87.3. This result fell short of the market's estimate of 88.0. Additionally, the Eurozone manufacturing sector's woes worsened in July, with the Manufacturing PMI decreasing to 42.7, below market expectations of 43.5, and June's reading of 43.4. The index reached its lowest level in 38 months. The downbeat data dampens demand for WTI as investors fear the economic slowdown in the region.

Oil traders will keep an eye on the Federal Open Market Committee (FOMC) meeting and Fed Chairman Jerome Powell's press conference for fresh impetus. This key event could significantly impact the USD-denominated WTI price. Also, the EIA Crude Oil Stocks Change, US Advance GDP QoQ, and the core Personal Consumption Expenditure (PCE) Price Index MoM will be due later this week.