Oil prices fell 1% as Fed worries about unexpected increase in U.S. inventories

Investing.com – Oil prices fell sharply during Asian trading on Wednesday, extending recent losses as an unexpected build in U.S. inventories and signs of strong crude output raised concerns about tight supply conditions.

Markets were also on edge ahead of the Federal Reserve's meeting later in the day, which was widely expected to make hawkish remarks. A surge in oil prices this week on expectations from the Federal Reserve has also put pressure on oil prices.

Crude oil prices for July were down 0.9% at $85.58 a barrel and were down 1% at $80.48 a barrel by 21:02 ET (01:02 GMT).

Oil prices have also fallen in recent sessions as speculation mounts about a ceasefire between Israel and Hamas, although no such deal has been reached so far.

Rising U.S. inventories and strong output weigh on oil prices

Data from the American Petroleum Institute on Tuesday night showed that U.S. production increased by 4.9 million barrels in the week ended April 26, below expectations for a rise of 1.5 million barrels.

Although gasoline and distillate inventories fell, the overall increase suggested that oil supplies in the world's largest fuel consumer are not as tight as initially expected.

This view was further confirmed by another data showing that U.S. domestic crude oil production increased to 13.15 million barrels per day in February from 12.58 million barrels per day in January, the largest increase since October. This growth has also brought U.S. production back to record highs.

With U.S. production remaining strong and the country's oil market well-supplied, it has raised questions about how tight global crude markets will be in the coming months.

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A potential ceasefire between Israel and Hamas could also further dilute expectations of market tensions, especially as the risk of supply disruptions in the Middle East is low.

API data, which typically signals similar trends, will be released later on Wednesday.

The Fed's concerns are at work, and the dollar is under pressure

Markets were also on edge ahead of the end of the two-day Federal Reserve meeting later in the day. While the Fed is widely expected to take action, Fed Chairman Jerome Powell is likely to deliver hawkish words after a series of strong inflation data.

Expectations of higher U.S. interest rates in the longer term have caused the U.S. dollar to rise sharply this week, which has also weighed on oil prices.

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