Oil settles up for third day as interest rate concerns ease

FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka

By Laura Sanicola

(Reuters) -Oil rose for a third straight day on Wednesday as investors felt more comfortable with risk a day after the Federal Reserve chair's remarks eased concerns about future interest rate hikes.

Comments from U.S. Federal Reserve Chair Jerome Powell on Tuesday were seen as less hawkish than feared, boosting risk appetite and weighing on the dollar. A weaker U.S. currency makes dollar-denominated oil cheaper for buyers holding other currencies.

"The reduction in risk appetite that had spun largely off Fed Chairman Powell’s comments yesterday, applies equally to industrial commodities such as oil in providing a significant headwind against further major price advances," said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

Brent crude settled up $1.40, or 1.7%, to $85.09 a barrel while U.S. West Texas Intermediate (WTI) crude settled up $1.33, or 1.7%, to $78.47.

Investors hope less aggressive U.S. interest rate increases will help the world's biggest economy dodge a sharp economic slowdown or recession that would hit oil demand. China's ending of COVID-19 curbs, meanwhile, is also expected to support demand for fuel.

"A looming oil demand surge together with lacklustre global supply growth will ensure that the oil balance tightens over the coming months," said Stephen Brennock of oil broker PVM.

On supply, OPEC and its allies, together known as OPEC+, last week decided to keep output curbs in place and an Iranian official on Wednesday said the group is likely to stick with current policy at its next meeting.

The earthquake that struck Turkey and Syria on Monday stopped crude oil flows from Iraq and Azerbaijan out of the Turkish port of Ceyhan. BP Azerbaijan has declared force majeure on Azeri crude shipments from the port. Iraq's pipeline to Ceyhan resumed flows on Tuesday.

U.S. Energy Information Administration data showing U.S. oil production rose last week to the highest level since April 2020, however, limited oil's gains.

"There are some people out there definitely throwing money at the production side of the business...that was bearish for the market," said Bob Yawger, director of Energy Futures at Mizuho.

Crude inventories rose by 2.4 million barrels in the week ended Feb 3 to 455.1 million barrels, compared with analysts' expectations in a Reuters poll for a 2.5 million-barrel rise.

(Additional reporting by Sonali Paul in Melbourne and Jeslyn Lerh in SingaporeEditing by Jason Neel, David Goodman, David Gregorio and Deepa Babington)