BEIJING, Jan 27 (Reuters) – Oil prices fell on Thursday as investors cashed in profits from the 2% gains in the previous session after the U.S. Federal Reserve indicated an interest rate hike in March, leading to a technical correction in surging energy markets.

Futures pulled back amid a broader decline in financial markets triggered by the March interest rate increase telegraphed by the Fed and a surge in the U.S. dollar. Crude prices have surged amid the tensions between Ukraine and Russia, the world’s second-largest oil producer, that has fanned fears of disruptions of natural gas to Europe. Brent crude futures slipped 31 cents, or 0.3%, to $89.65 a barrel at 0122 GMT, after jumping about 2% to hit $90 for the first time in seven years on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures also eased 26 cents, or 0.3%, to $87.09 a barrel, after gaining 2% in the previous session. “Continued supply challenges and mounting Russia-Ukraine tensions continue to support crude oil prices. It is down slightly today but I think it is nothing more than a technical move,” said Howie Lee, economist at OCBC in Singapore.

While the Russia-Ukraine tensions have a role in lifting oil prices, “real supply challenges both within OPEC and the U.S. … have been the main drivers in pushing the market higher,” Lee said, referring to the Organization of the Petroleum Exporting Countries (OPEC). OPEC missed its planned supply increase target in December, highlighting capacity constraints that are limiting supply as global demand recovers from the COVID-19 pandemic. read more

OPEC+, which includes OPEC and other allies such as Russia, is gradually relaxing 2020’s output cuts as demand recovers from the demand collapse that year. But many smaller producers can’t raise supply and others have been wary of pumping too much in case of renewed COVID-19 setbacks.

An increase in crude oil and gasoline inventories in the United States, the world’s biggest oil consumer, alleviated some of the concerns about supply.

Crude inventories rose by 2.4 million barrels in the week to Jan. 21 to 416.2 million barrels, compared with analysts’ expectations in a Reuters poll for a 728,000-barrel drop, the Energy Information Administration (EIA) said on Wednesday. Gasoline stocks =ECI rose by 1.3 million barrels last week to 247.9 million barrels, the EIA said, the most since February 2021.

Reporting by Emily Chow; Editing by Christian Schmollinger