Oil prices are trending lower as the spike in US crude inventories eases tight supply opportunities. By Investing.com

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Investing.com — Oil prices fell on Wednesday as an unexpected increase in U.S. inventories and signs that the Federal Reserve will keep interest rates high for longer than previously expected weighed on sentiment.

At 2:30 PM ET (17:30 GMT), the price fell 3.4% to $83.44 per barrel, while falling 3.6% to settle at $79 per barrel.

US inventory build-up, strong production weighs

Data from the , shows that US inventories rose by 7.3 million barrels for the week ending April 26, clouding expectations for a 2.3 million barrel decline.

The data shows that oil supplies were not as tight as initially expected for the world’s largest fuel consumer.

This idea was reinforced by separate data showing that U.S. domestic crude oil production rose to 13.15 million barrels per day in February from 12.58 million barrels in January, the biggest increase since October. The increase also brought US production back into view of record highs.

This raised questions about how tight global crude markets would be in the coming months, given that U.S. production remains robust and the country’s oil markets remain well supplied.

The Fed keeps interest rates stable and sends higher signals for longer

The Federal Reserve left interest rates unchanged within a range of 5.25% to 5.5% and indicated that rates could likely remain higher for longer than previously expected, but left out interest rate hikes.

“It is unlikely that the next policy rate will be an increase,” Fed Chairman Jerome Powell said on Wednesday, although he acknowledged that progress on inflation had stalled in recent months.

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Expectations that US yields will continue to rise for longer have seen the dollar rise sharply this week, which has also weighed on oil prices, with prolonged exposure to high interest rates likely to weigh on economic activity for the world’s largest consumer.

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Peace talks in the Middle East

A possible ceasefire between Israel and Hamas could also further downplay expectations of tighter markets, as it would reduce the risks of supply disruptions in the key oil-rich Middle East.

Expectations that a ceasefire deal between Israel and Hamas could be in sight have grown following renewed pressure led by Egypt.

“The geopolitical risk premium continues to decline as tensions between Israel and Iran have subsided. There is also some hope for a possible ceasefire between Israel and Hamas,” ING analysts said in a note.

(Peter Nurse, Ambar Warrick contributed to this article.)

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