Investing.com-- Oil prices fell in Asian trade on Thursday as the Federal Reserve’s warning on higher U.S. interest rates saw investors lock-in more recent profits, although expectations of tight supply still presented a positive outlook for crude.
Concerns over higher rates saw West Texas Intermediate crude futures (WTI) lose the $90 per barrel level, while Brent oil futures also fell sharply from a 10-month high hit earlier this week, as markets were slapped with a bout of profit taking.
This was fostered by fears of the Fed, as the central bank kept rates steady on Wednesday but warned that sticky inflation could still elicit at least one more rate hike this year. The bank also flagged fewer rate cuts next year.
The Fed’s comments boosted the dollar and spurred losses across most financial markets. Brent oil futures fell 0.4% to $93.08 a barrel, while WTI futures fell 0.6% to $89.17 a barrel by 20:17 ET (00:17 GMT), extending losses into a third straight session after soaring to 10-month highs earlier.
Markets feared that higher interest rates will weigh on economic activity, potentially denting crude demand. Beyond the Fed, interest rate decisions from the Bank of England and the Bank of Japan are also on tap this week.
But the catalysts that drove crude to 2023 highs- particularly, the prospect of tighter supply- still remained in play, with some analysts warning that oil prices could push even higher.
U.S. inventories shrink, gasoline and distillates see surprise draw
Government data showed on Wednesday that U.S. crude inventories shrank slightly less than expected in the week to September 15.
But more positive was an unexpected draw in gasoline and distillates, as refiners slowed down production with the end of the summer season.
The overall draw in inventories was also driven by strong oil exports, indicating some resilience in global crude demand.
Wednesday’s inventory data showed that U.S. oil markets remained tight, furthering bets that global supplies will tighten further in the coming months.
JP Morgan sees Brent as high as $120 a barrel on tighter supply
Analysts at investment bank JP Morgan warned that Brent oil prices could rise as far as $120 a barrel, especially as markets tighten further in the wake of supply cuts by Saudi Arabia and Russia.
The supply cuts were the key driver of a nearly 30% rally in crude over the past two months, and are expected to continue underpinning prices in the near-term.
But JPMorgan also warned that higher oil prices could dent global economic growth, especially with interest rates also set to remain higher for longer.
Higher oil prices have also been a key driver of inflation in recent months, which in turn elicited a hawkish outlook from the Fed.