Oil slips as investors lock in profits ahead of Fed update

                                          

TOKYO: Oil prices slipped on Wednesday as investors locked in profits ahead of an update from the U.S. Federal Reserve and the U.S. Energy Information Administration's inventory data, but concerns over tighter supply amid geopolitical tensions capped losses.

Oil prices hit seven-year highs last week on worries that supplies could tighten due to Ukraine-Russia tensions. U.S. President Joe Biden said on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine, while Western leaders stepped up military preparations and made plans to shield Europe from a potential energy supply shock.

Concerns about the Middle East also rose on Monday, when Yemen's Iran-aligned Houthi movement launched a missile attack on a United Arab Emirates base hosting the U.S. military. The attack was thwarted by U.S.-built Patriot interceptors, U.S. and Emirati officials said. 

"The market downside is limited due to heightened tensions between Russia and Ukraine and the threat to infrastructure in the UAE," Hiroyuki Kikukawa, general manager of research at Nissan Securities said, adding that oil was likely to continue its upward run after the Federal Reserve policy meeting. 

Brent crude futures were down 32 cents, or 0.4per cent, at $87.88 a barrel at 0513 GMT, having jumped 2.2per cent in the previous session. 

U.S. West Texas Intermediate (WTI) crude futures slipped 45 cents, or 0.5per cent, to $85.15 a barrel, having climbed 2.8per cent on Tuesday.

 "Investors locked in profits just in case of a collapse in global share prices following the Fed's update on its monetary policy," said Tsuyoshi Ueno, senior economist at NLI Research Institute. 

The Fed ends a two-day policy meeting later in the day, with market players anxiously awaiting further clues on the timing and pace of interest rate hikes, as well as how the central bank will go about slimming down its almost $9 trillion balance sheet.

Weekly U.S. inventory data released overnight by the American Petroleum Institute met expectations. Market sources said the data showed U.S. crude and distillate stocks fell while gasoline inventories rose for the week ended Jan. 21.

Traders were now looking forward to the EIA report, due for release at 1530 GMT, for confirmation of those trends, Ueno said. 

Separately, the U.S. Department of Energy said on Tuesday it had approved an exchange of 13.4 million barrels of crude oil from the Strategic Petroleum Reserve to seven companies as part of Biden's effort to help control oil prices.