ArathySomasekhar

HOUSTON (Reuters). Oil prices dropped on Wednesday, owing to worries over global economic growth and fuel demand. The Federal Reserve is expected to hike interest rates significantly as U.S. production reaches pre-pandemic levels.

Futures August fell 0.5% to $120.61 per barrel at 11:50 AM. ET (1550 GMT) had fallen to $119.26 earlier during the session.

U.S. West Texas Intermediate crude oil for July dropped $1.02 or 0.9% to $117.91 per barrel after falling to an all-time low of $116.60.

Production, which had been relatively stagnant for the past few months, grew by 100,000 barrels per hour last week, to 12,000,000 bpd. This is the highest production level since April 2020 according to data from Energy Information Administration. [EIA/S]

John Kilduff of Again Capital LLC, said that “a small amount of this uptick is perhaps the first indication of more to follow there.”

Data also revealed a rise in U.S. crude and distillate stocks, while unexpectedly gasoline saw a drop due to the summer driving season.

Data showed that drivers around the globe were able to tolerate record-high road fuel prices.

Inflation is on the rise, prompting investors and traders to prepare for big Fed moves this week. This would include a 75 basis point hike by the Fed. It would represent the largest U.S. interest rates increase in nearly 28 years.

After the close of the two-day policy meeting, an announcement will be made at 2 PM EDT (1800 GMT).

Stephen Brennock, a PVM analyst said that a tighter monetary policy could lead to “recession-induced destruction of demand.”

Investors looking to take bolder action seem to be disappointed by the promise of fresh support from the European Central Bank on Wednesday.

China’s recent COVID epidemic has created fears about a new round of lockdowns.

The International Energy Agency stated that rising oil prices, coupled with weakening economic forecasts, are threatening futures demand prospects.

In spite of persistent supply concerns, the oil price was still hovering around $120 per barrel.

The Organization of the Petroleum Exporting Countries, OPEC+ and its allies have been struggling to meet their monthly crude oil production quotas. This is after being hit hard by a political crises that reduced Libya’s output.

Carsten Fritsch (Commodity Analyst at Commerzbank) said, “Because OPEC output is still falling noticeably below the announced level. This would result in a supply gap of approximately 1.5 million barrels/day on the oil markets in the second-half of the year.”

Tight gasoline supplies helped to support oil prices. The U.S. President Joe Biden asked oil companies why they weren’t putting more gasoline on the market.