16.09.202609:15 Forex Analysis & Reviews: Oil Deflated After a 4% Overheat

Oil retraced after a rally driven by supply disruptions looked excessive, and an industry report pointed to rising US inventories. The Federal Reserve decision is ahead, so profit-taking on overbought assets cannot be ruled out.

Today Brent fell to $108 per barrel, giving back some of its gains after rising 4% over the previous two sessions, while WTI traded around $105. The recent sharp jump was caused by the shutdown of Saudi Arabia's East-West pipeline and a halt in supplies from Libya.

An additional reason for the sell-off was an American Petroleum Institute report. According to API data, US commercial crude inventories rose by 7.1 million barrels over the week. Gasoline and distillate stocks also increased. Official government data are due later on Wednesday, and the market will look to them to determine whether the correction will stick or the rally will resume. The direct implication: rising inventories reduce the argument for an immediate supply shortfall, prompting speculative longs that drove prices over two days to begin partially closing.

Despite the pause, oil has rallied significantly year to date amid the US–Iran conflict spreading across the Middle East. Rising oil prices, along with an even sharper jump in refined fuels, have contributed to a global inflation wave, and against that backdrop the Fed is expected to hike rates today to curb price growth. Winners from this dynamic are oil exporters and holders of existing long positions, while losers are fuel consumers and central banks forced to respond to inflation with tighter policy.

Another problem is the lack of clarity on when the Saudi pipeline will be restarted, although US Energy Secretary Chris Wright said the outage will be measured in days. Because of the disruptions, Saudi Aramco is already delaying shipments to some European customers, forcing buyers to seek alternative barrels—benefiting suppliers from other regions that can deliver urgent volumes in place of Saudi supply.

Traders are also monitoring Yemen, where Iran-backed Houthis are advancing against local rivals while stepping up strikes on targets in Saudi Arabia and its shipping routes, moving toward the Bab al-Mandeb Strait — a key chokepoint at the southern exit of the Red Sea.

Technical picture: buyers need to take the nearest resistance at $104.70. That opens a target of $109.30, above which a breakout will be difficult. The farthest target is the $113.40 area. On the downside, bears will try to seize control of $100. If they succeed, a range breakout would hit bull positions hard and send oil toward the $96.54 low, with a prospect of extending to $92.