Oil up ahead of Fed meet as Middle East conflict rages

By Natalie Grover

LONDON (Reuters) – Oil prices rose more than 1% on Wednesday ahead of the keenly watched meeting of the U.S. central bank for clues on interest rate policy, while the conflict in the Middle East remains in focus.

Brent January crude futures were up about 1.1%, or 90 cents, to $85.92 a barrel by 1042 GMT. U.S. West Texas Intermediate crude futures also gained 1.1%, or 90 cents, to $81.92 a barrel.

“Crude prices are steadying ahead of a key issuance update by the Treasury and FOMC rate decision,” said OANDA analyst Edward Moya, referring to the Federal Open Market Committee that sets the direction of U.S. monetary policy.

The Fed, which will end its meeting on Wednesday, is widely expected to hold rates steady.

In Europe, October inflation in the Euro zone was at its lowest level in two years, a Eurostat flash reading showed, leading to expectations the European Central Bank is unlikely to hike interest rates soon. The Bank of England is expected to meet on Thursday.

Interest rate hikes aimed at taming inflation can slow economic growth and dampen oil demand.

In China – the world’s largest oil importer – factory activity unexpectedly contracted in October, a private survey showed on Wednesday, adding to downbeat official figures from a day earlier and raising questions over its fragile economic recovery.

“Geopolitical risks remain and that seems to be offsetting some of the record production levels that are coming from the U.S.,” added Moya.

Crude oil inventories in the U.S. rose by about 1.3 million barrels last week, while fuel stockpiles fell by about 360,000 barrels, according to market sources citing American Petroleum Institute figures on Tuesday.

In Gaza, a first group of injured people were evacuated to Egypt on Wednesday, a source and Egyptian media said, as Israeli forces pressed on in their battle against Hamas militants.

Iran’s Supreme Leader Ayatollah Ali Khamenei on Wednesday called on Muslim states to cease oil and food exports to Israel, demanding an end to its bombardment of the Gaza Strip, state media reported.

(Reporting by Natalie Grover in London, Mohi Narayan in New Delhi and Emily Chow in Singapore; editing by Muralikumar Anantharaman and Jason Neely)