Crude oil futures had slipped by 1.3% late in the New York trading session, with the Fed minutes showing that most members of the committee were ‘broadly comfortable’ with the guidance given in June to scale back on asset purchases later in the year if the economy improves in line with Fed forecasts.
There was evidence of uncertainty about how right the conditions are for reducing the pace of stimulus, though, with ‘numerous risks’ to the Fed’s economic forecasts cited, with the risk of recent softness failing to abate being noted as the most salient.
The market has reacted negatively to the minutes though, perhaps because of their failure to offer any greater clarity or remove the uncertainty that surrounds the timing of tapering. Unfortunately, when the Fed is saying that the decision is dependent on incoming data, uncertainty may be an intrinsic part of the process right up until they do make the decision.
Data earlier from the Energy Information Administration showed that US stockpiles of crude dropped by a substantial amount last week. Oil inventories declined by 1.4 million barrels to 359.1 million, the lowest level in just under a year, while US oil production dropped by 0.7% to 7.52 million barrels a day.
Despite the fall in oil stocks, inventories are still at historically high levels and the draw was broadly in line with expectations, meaning that the market’s focus was mainly on the Fed and how their future actions may impact on demand.