Oil prices edged down more than 1% ahead of the US Federal Reserve rate decision

According to the report, Brent crude futures experienced a decline of 97 cents, equivalent to a 1.3% drop, reaching $73.82 per barrel by 0437 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude also fell by 1.3% to $69.24 per barrel.

Last week, both benchmarks recorded their second consecutive weekly decrease due to concerns about demand growth in China, the world's largest crude importer. Disappointing economic data from China offset the positive impact of Saudi Arabia's commitment to cutting production by 1 million barrels per day (bpd) in July.

On Monday, oil prices declined as investors anticipated the U.S. Federal Reserve meeting to assess the central bank's stance on further interest rate hikes. Additionally, worries about China's fuel demand growth and the increasing supply of Russian crude weighed on the market.

In a note, Francisco Blanch from Bank of America Global Research described the current situation as a clash between bearish asset allocators, who highlight monetary contraction, and bullish oil speculators who anticipate lower inventories in the second half of 2023. Blanch believes that the bearish allocators will maintain dominance until the Fed eases money supply. Nonetheless, Bank of America still predicts that Brent crude will average around $80 per barrel in 2023.

The rate hikes by the U.S. Federal Reserve have strengthened the value of the U.S. dollar, making commodities priced in dollars more expensive for holders of other currencies. This has contributed to the downward pressure on oil prices.

Most market participants expect the U.S. central bank to maintain interest rates at their current levels following the conclusion of its two-day monetary policy meeting on Wednesday.

In a note, Morgan Stanley economist Seth Carpenter expressed the belief in a soft landing for the U.S. economy but cautioned that policy could tighten further if growth fails to slow down and if there are funding pressures in the banking system. Carpenter stated that these factors continue to pose risks skewed to the downside.

Regarding the supply side, while Saudi Arabia has reduced oil production four times over the past year, Russian supply has remained steady due to the strategic implementation of sanctions, which had a limited impact on output. Despite the European Union's embargo and the Group of Seven's price cap mechanism, Russian oil exports to China and India have continued to grow.

Goldman Sachs has revised its oil price forecasts downward due to higher-than-expected supplies from Russia and Iran. The bank also increased its 2024 supply forecasts for these two producers and Venezuela, adding a total of 800,000 bpd. Consequently, Goldman Sachs' December crude price projections now stand at $86 per barrel for Brent, down from $95, and at $81 per barrel for WTI, down from $89.