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Oil prices fell more than US$3 on Wednesday as markets worried about a fall in demand after the Federal Reserve hiked its benchmark interest rate by three-quarters of a percentage point.

Brent crude futures for August settled down US$2.70, or 2.2 per cent, at US$118.51 a barrel, having fallen as low as US$117.75. U.S. West Texas Intermediate crude for July fell US$3.62, or 3.04 per cent, to US$115.31 a barrel, after dropping to a low of US$114.60.

The biggest hike by the U.S. central bank since 1994 also sent the dollar higher with the dollar index rising to its highest since 2002. A stronger greenback makes U.S. dollar-priced oil more expensive for holders of other currencies, curtailing demand.

Meanwhile, U.S. crude production, which has been largely stagnant over the last few months, edged up 100,000 barrels a day last week to 12 million b/d, its highest level since April, 2020, data from the U.S. Energy Information Administration showed.

“A little bit of that uptick in domestic production maybe the first sign of more to come there,” said John Kilduff, a partner at Again Capital LLC.

The data also showed a build in U.S. crude stocks and distillate inventories, while gasoline posted a surprise drawdown on the back of the summer driving season.

Drivers around the world were tolerating record-high prices for road fuels, data showed.

The European Central Bank promised fresh support and a new tool on Wednesday to temper a market rout that has fanned fears of a new debt crisis on the euro area’s southern rim but appears to have disappointed investors looking for bolder steps.

Adding to demand woes, China’s latest COVID-19 outbreak has raised fears of a new phase of lockdowns.

Higher oil prices and weakening economic forecasts are dimming future demand prospects, the International Energy Agency said.

But persistent concerns about tight supply meant oil prices were still holding near $120 a barrel.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are struggling to reach their monthly crude production quotas, recently hit by a political crisis that has reduced Libya’s output.

“Because OPEC production is still falling noticeably short of the announced level, this would result in a supply deficit of around 1.5 million barrels per day on the oil market in the second half of the year,” said Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt, Germany.

Oil prices gained some support from tight gasoline supply. U.S. President Joe Biden told oil companies to explain why they were not putting more gasoline into the market.

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