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Oil fluctuated ahead of a Federal Reserve meeting that’s expected to see further monetary tightening to combat rising US inflation.

West Texas Intermediate traded near US$119 a barrel after declining 1,7 percent on Tuesday — the most in three weeks — amid signs the US may consider taxes on the profits of energy companies to rein in costs and inflation. The Fed is expected to boost interest rates by 75 basis points on Wednesday.

Russia’s invasion of Ukraine has fanned inflation after upending global trade flows and tightening crude and fuels markets. US retail gasoline prices have repeatedly broken records and recently hit US$5 a gallon. Global oil supply will struggle to meet demand next year, the International Energy Agency said.

“There’s going to be global economic slowdown worries that follow the rate hike, which the Fed will need to address,” said Will Sungchil Yun, a senior commodities analyst at VI Investment in Seoul. “The rate increase is somewhat baked into prices.”

US President Joe Biden is planning to visit Saudi Arabia next month, a trip that may mend frayed ties with the kingdom but is unlikely to resolve the energy crisis. Saudi Arabia and fellow OPEC producer United Arab Emirates don’t have enough spare capacity to significantly change the market, according to Daniel Yergin, renowned oil historian and vice chairman of S&P Global Inc.

WTI for July delivery rose 0.2 percent to US$119.15 a barrel at 9:03 a.m. in London.

Futures on Tuesday fell the most since May 23. Brent for August settlement gained 0.2 percent to US$121,44 a barrel. An economic rebound has exacerbated market tightness and helped to send oil almost 60 percent higher this year. Crude demand remains robust in Asia and China is expected to boost consumption and drive prices even higher once the world’s biggest crude importer emerges from strict virus restrictions. 

 China’s economy showed a mixed recovery in May, with industrial production unexpectedly increasing while the property market continued to slump. Crude processing by the nation’s refiners marginally increased last month, capped in part by bloated fuel stockpiles, while apparent oil demand slumped.

 The American Petroleum Institute reported US gasoline inventories dropped by 2.16 million barrels last week, according to people familiar with the figures. Crude stockpiles at the key storage hub at Cushing fell by 1.07 million barrels, while nationwide inventories rose by 736,000 barrels, the API said. Energy Information Administration data is due later Wednesday. – Bloomberg