Oil Prices Rise on Supply Concerns, But Fed Rate Hike Bets Cap Gains

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Brent oil futures were up 11 cents, or 0.1%, to $90.73 a barrel.

SINGAPORE:

Oil prices rose on supply concerns on Wednesday, but expectations of another aggressive rate hike in the US limited profits amid investor concerns that it could lead to a recession and hurt fuel demand.

Brent crude futures were up 11 cents, or 0.1%, to $90.73 a barrel at 0415 GMT after falling from $1.38 the previous day.

US West Texas Intermediate crude was $83.99 a barrel, up 5 cents or 0.1%. The October supply contract expired $1.28 Tuesday, while the more active November contract lost $1.42.

“The bullish factor is always the undersupply caused by sanctions against Russia,” said Tina Teng, an analyst at CMC Markets. “Iran’s nuclear deal has encountered obstacles that will not lead to additional supplies any time soon.”

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The United States said it did not expect a breakthrough at the UN General Assembly this week in reviving the 2015 Iran nuclear deal, which would diminish the prospects of a return of Iranian barrels to the international market.

The OPEC producer group – the Organization of the Petroleum Exporting Countries and Related Countries, including Russia – is now falling a record 3.58 million barrels per day below its production targets, or about 3.5% of global demand. The deficit highlights the underlying supply shortage in the market.

But oil prices remained under pressure as a result of a further rise in US bond yields, pushing the dollar further ahead of the Fed’s rate decision, Teng added.

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The Fed is widely expected to raise interest rates by 75 basis points for the third time in a row later on Wednesday in its efforts to contain inflation.

Other central banks, including the Bank of England, are also meeting this week.

“In the absence of major new developments on the front, crude oil is typically swayed by the gloomy mood in broader financial markets,” said Vandana Hari, founder of Vanda Insights in Singapore.

Stocks in Asia slumped on Wednesday and bond yields rose on Wednesday, as investors braced for the Fed’s decision later in the day.

The dollar also hovered near a two-decade high against a basket of currencies on Wednesday, making oil more expensive for holders of other currencies. [FRX/]

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Meanwhile, U.S. crude oil and fuel inventories rose about 1 million barrels for the week ended Sept. 16, according to market sources citing figures from the American Petroleum Institute on Tuesday.[API/S]

US crude inventories are estimated to have risen by about 2.2 million barrels in the week to September 16, according to a comprehensive Reuters poll.

The head of Saudi state oil giant Aramco warned on Tuesday that the world’s reserve capacity for oil production could quickly be used up if the global economy recovers.

(Reporting by Yuka Obayashi and Isabel Kua; editing by Kenneth Maxwell and Ana Nicolaci da Costa)

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