By Natalie Grover
LONDON (Reuters) -Oil prices drifted near three-month highs on Wednesday, with investors cautious ahead of an expected Federal Reserve rate hike later in the day and a spike in supplies.
futures slipped 34 cents to $83.30 a barrel by 0853 GMT, while U.S. West Texas Intermediate (WTI) crude was at $79.23, down 40 cents. Both hit three-month highs on Tuesday.
Oil prices have been rallying for four weeks, with investors buoyed by signs of tighter supplies, namely output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies, as well as pledges by Chinese authorities to shore up the world’s second-biggest economy.
However, there are concerns around whether China, also the world’s second biggest oil consumer, will actually be able to step up policy support.
“We still need to wait for actual policies – the risk is that these policies fall short of expectations,” said ING head commodities strategist Warren Patterson.
“The market will continue to be in a tug-of-war between tightening global supply and fears of slowing demand due to the global economic slowdown,” added Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan (OTC:) Securities.
Investors had also squared their positions ahead of the Fed rate decision, Kikukawa continued.
The Fed’s policy meeting started on Tuesday, and it is widely expected the U.S. central bank will deliver a 25 basis-point rate hike when it concludes.
“What matters most is the commentary from the Fed, not so much the actual decision. But that is only if the Fed increases the interest rate by 25 basis points,” said Naeem Aslam of Zaye Capital Markets.
“Anything more than that or keeping the interest rate unchanged will change the game all together, and those events are bound to bring massive volatility.”
Meanwhile, U.S. crude stocks rose by about 1.32 million barrels in the week ended July 21, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts polled by Reuters had expected a 2.3 million barrel drawdown.
U.S. government data on inventories is due on Wednesday. [EIA/S]
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