Oil prices decline ahead of the Fed meeting and important economic data

As investors chose a cautious balance at the beginning of a week that contains multiple central bank meetings, including the U.S. Federal Reserve, as well as significant indicators of the state of the global economy, oil prices fell heavily on Monday. Both benchmarks are down more than 2% with WTI touching close to 3%. 

Despite Israel's increased ground assault on Gaza, both benchmarks ended Friday up 3%; however, the contracts saw significant losses over the week.

Israel has kept bombing Gaza from the air and the ground, but the premium traders have placed on this risk has decreased because there are no signs of the conflict getting worse or, more crucially, because there is no disruption to the vast amounts of oil barrels that are still moving through waters near the war zone.

Although traders will be keenly monitoring developments in the Middle East, significant price increases will require an escalation of the situation.

Rather, ahead of the Federal Reserve meeting on Wednesday, traders have been on edge because any hawkish signals from the central bank would create additional obstacles for the demand for petroleum.

The recent increase in oil prices has been partially offset by concerns about longer-term increases in U.S. interest rates. Although fuel demand in the United States has not increased despite increasing prices, dealers are concerned that this may change in the upcoming months.

The consensus is that the Fed will hold interest rates steady this week. Despite this, officials have left the door open for one more rate hike this year, particularly in light of multiple higher-than-expected inflation data.

This week also sees policy-setting sessions from the Bank of England and the Bank of Japan, though little is anticipated to change from the current situation at each meeting.

Key purchasing managers index data from China overnight, which are expected to provide further insight into corporate activity in the largest oil importer in the world, are perhaps of greater importance to traders.

(Sources: investing.com, reuters.com)