BEIJING, (Reuters) – Oil prices dropped on Thursday after investors cashed in their gains of 2% in the previous session following a U.S. Federal Reserve announcement that it would raise interest rates in March. This resulted in a technical correction to surging oil markets.

Due to a larger decline in financial market due to the Fed’s March rate rise and the surge in U.S. dollars, futures prices fell. The tensions that have erupted between Russia and Ukraine, which is the second largest oil producer in the world, has caused crude prices to soar. This has raised fears about disruptions in Europe.

After jumping around 2% to $90 on Wednesday, futures dropped 31 cents (or 0.3%) to $89.65/barrel at 0122 GMT.

U.S. West Texas Intermediate crude oil futures (WTI), also fell 26 cents or 0.3% to $87.09 per barrel after rising 2% over the past session.

The price support is attributed to “continued supply difficulties and increasing Russia-Ukraine tensions”. The price is slightly down today but it is not a major move,” explained Howie Lee of OCBC Singapore.

Although Russia-Ukraine tensions played a part in raising oil prices, Lee stated that “real supply problems both within OPEC (the U.S.)… were the primary drivers of pushing the market higher.” Lee was referring to the Organization of the Petroleum Exporting Countries.

OPEC failed to meet its December target for an increase in supply, highlighting that capacity constraints are limiting supply while global demand recovers after the COVID-19 pandemic.

OPEC+ is a group that includes OPEC, Russia and other allies. As demand recovers after the 2008 demand collapse, OPEC+ will gradually relax 2020’s production cuts. However, many small producers cannot increase their supply. Others have been careful not to pump too much in case there are new COVID-19 setbacks.

Some supply concerns were eased by an increase in gasoline and crude oil inventories in America, which is the largest oil consumer in the world.

Crude inventories rose by 2.4million barrels over the week Jan. 21-416.2 million barrels. That’s compared to the analysts’ estimates in a Reuters Poll for a 728,000-barrel drop. The Energy Information Administration(EIA) reported Wednesday.

Last week’s gasoline stock =ECI increased by 1.3million barrels to 247.9million barrels. This is the largest increase since February 2021, according to the EIA.