Oil prices fall after Fed indicated interest rate hike

The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas, November 22, 2019. REUTERS Angus Mordant File Photo

BEIJING, Jan 27, Reuters -- Oil prices fell as investors slashed profits from the 2% gains in the previous session after the U.S. Federal Reserve indicated an interest rate hike in March, leading to a technical correction in surging energy markets.

Futures retreated amid a decline in financial markets triggered by the March interest rate increase telegraphed by the Fed and a surge in the U.S. dollar. Concerns about disruption of natural gas in Europe have resulted in a surge in crude prices amid the tensions between Ukraine and Russia, the world's second largest oil producer. The price of crude fell 31 cents, or 0.3%, to $89.65 a barrel at 0122 GMT, after jumping about 2% to $90 for the first time in seven years on Wednesday.

The U.S. West Texas Intermediate WTI crude futures gained 2% in the previous session, easing 26 cents, or 0.3%, to $87.09 a barrel.

Continued supply challenges and mounting Russia-Ukraine tensions continue to support crude oil prices. It is down slightly today, but I think it is nothing more than a technical move, said Howie Lee, economist at OCBC in Singapore.

The Russian-Ukraine tensions have a role in lifting oil prices, but real supply challenges within the OPEC and the U.S. have been the main factors in pushing the market higher, Lee said, referring to the Organization of the Petroleum Exporting Countries OPEC OPEC missed its December supply increase, highlighting capacity constraints that are limiting supply as global demand recovers from the COVID-19 pandemic. Russia, along with OPEC, is gradually relaxing 2020's output cuts, as demand recovers from the demand collapse that year. Many smaller producers can't raise supply and others are wary of pumping too much in case of renewed COVID 19 setbacks.

The United States, the world's biggest oil consumer, has an increase in crude oil and gasoline inventories that has alleviated some concerns about supply.

In the week to January 21, crude inventories rose by 2.4 million barrels to 416.2 million barrels, compared with analysts' expectations for a 728,000 barrel drop, the Energy Information Administration EIA said on Wednesday. The EIA said last week, the most since February 2021, was the increase in gasoline stocks ECI by 1.3 million barrels to 247.9 million barrels.