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Oil Holds Soft Tone on Oversupply Worries ahead of Fed Meeting

BEIJING, Dec 13 (Reuters) - Oil prices extended losses on Wednesday, after falling by more than 3% to six-month lows on oversupply and demand concerns.

Brent crude futures for February fell 33 cents, or 0.45%, to $72.91 a barrel by 0621 GMT. U.S. West Texas Intermediate crude futures for January dropped 29 cents, or 0.42%, to $68.32 a barrel.

The market stumbled in overnight trade as firmer-than-expected U.S. inflation readings for November bolstered the view the Federal Reserve was unlikely to cut interest rates early next year, which would weigh on consumption.

Meanwhile, weekly average Russian crude exports jumped to the highest since July, ANZ analysts said, compounding oversupply concerns and throwing doubt on the recent output cut agreement by the Organization of the Petroleum Exporting Countries and allies (OPEC+).

The U.S. Energy Information Administration raised its forecast for supply in 2023 by 300,000 barrels per day from its previous report to 12.93 million barrels per day.

The bearish outlook puts oil on track to decline for an eighth straight week.

A policy meeting by the U.S. central bank that concludes later on Wednesday will determine the direction of markets, said Tina Teng, a market analyst with CMC Markets. "A more hawkish-than-expected stance by the Fed may cause a further drop in crude prices," Teng said.

The Fed is widely expected to keep rates on hold. However, investors will focus on officials' views on the economy and interest rates in the coming quarters.

Markets have priced in "aggressive rate cuts" for 2024, said Yeap Jun Rong, market strategist at IG. "Any disappointment on that front could strengthen the U.S. dollar and weigh on the risk environment," pushing down oil prices, Yeap said.

Suvro Sarkar, an analyst at DBS, said the discussions were unlikely to elicit surprises and that prices could recover somewhat in a "relief rally" afterward.

The United Nations on Wednesday passed a resolution calling for a ceasefire in Gaza, with President Joe Biden warning that Israel was starting to lose international support because of civilian deaths.

The cost of shipping through the Red Sea is also rising as the Iran-aligned Houthis in Yemen have stepped up attacks on ships they believe are connected to Israel, with industry sources warning of disruptions.

Nearly 200 nations reached a historic deal to begin reducing the global consumption of fossil fuels at the COP28 conference, meant to send a signal to investors in oil and other fossil fuels.

Reporting by Colleen Howe; Editing by Jacqueline Wong and Shri Navaratnam

Source: Reuters

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