Oil prices soar on supply woes, but Fed rate hike caps gains
Oil prices rallied on Wednesday on supply concerns, but prospects for another aggressive US rate hike capped gains on investors' concerns that it could spark a recession and negatively impact fuel demand.
Brent crude futures rose 11 cents, or 0.1%, to $90.73 as of 0415 GMT, after falling $1.38 the previous day.
West Texas Intermediate (WTI) crude was up 5 cents, or 0.1%, at $83.99 a barrel. The October delivery contract ended Tuesday down $1.28, while the more active November contract lost $1.42.
The problem of insufficient supply caused by the sanctions against Russia is the bull factor in the market. The revival of the Iran nuclear deal has faced hurdles that may not bring in excess supply any time soon.
The United States said it does not expect a breakthrough in reviving the 2015 Iran nuclear deal at this week's UN General Assembly which would dampen prospects for the return of Iranian barrels to the international market.
The OPEC+ producer group is currently experiencing a record 3.58 million barrels per day drop below production targets, or about 3.5% of global demand. The shortfall highlights the tightness in supply in the market.
However, oil prices are under pressure due to the additional increase in US bond yields, which allowed the Fed to push the dollar higher ahead of the rate decision.
The Fed is expected to raise 75 basis points for the third time in a row late Wednesday to rein in inflation.
Other central banks, including the Bank of England, are also meeting this week.
Stocks in Asia fell on Wednesday and bond yields rose as investors prepared for the Fed's decision later in the day.
The dollar also hovered near a two-year high against a basket of currencies on Wednesday, making oil more expensive for holders of other currencies.
Meanwhile, U.S. crude oil and fuel inventories increased by nearly 1 million barrels in the week ended Sept. 16, according to market sources citing figures from the American Petroleum Institute (API) on Tuesday.
U.S. crude inventories are estimated to have increased by about 2.2 million barrels in the week to September 16 last week, according to a survey.
The head of Saudi state oil giant Aramco warned on Tuesday that the world's reserve oil production capacity could quickly run out once the global economy recovers.
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