Oil prices dropped on Wednesday on worries over fuel demand ahead of a US Federal Reserve meeting which is expected to see the central bank hike rates by at least 75 basis points to combat inflation.

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WTI crude futures fell 8 cents, or 0.1 percent, to $118.85 a barrel by 0008 GMT. Brent crude futures fell 26 cents, or 0.2 percent, to $120.91 a barrel.

Surging inflation has led investors and oil traders to brace for a big move by the Federal Reserve this week in what could be the largest US interest rate hike in 28 years.

Also read: Oil Bounces As Tight Supply Offsets China, Recession Fears

On the demand side, China's latest COVID outbreak, traced to a 24-hour bar in Beijing, has raised fears of a new phase of lockdowns.

In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC) stuck to its forecast that world oil demand will exceed pre-pandemic levels in 2022, but said Russia's invasion of Ukraine, what Moscow calls is actions a "special operation" and developments related to the coronavirus pandemic pose a considerable risk.

The producers' group sees demand growth slowing next year, OPEC delegates and industry sources told Reuters, as surging oil prices help drive up inflation and act as a drag on the global economy.

Also read: Oil Falls As Us Inflation Data Surges, China Imposes Lockdowns

Still, offering some support to prices is tight supply, which has been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports.

First Published:Jun 15, 2022 6:40 AM IST