Oil snaps three-day decline after Fed keeps rates on hold

Oil gained 1% on Thursday, snapping a three-day decline, as risk appetite returned to financial markets after the Federal Reserve kept benchmark interest rates on hold.

Brent crude futures rose $1.28, or 1.51%, to $85.91 a barrel by 9.44am GMT, while West Texas Intermediate gained $1.33, or 1.65%, to $81.77 a barrel.

Oil prices drew support from the Fed’s decision to keep its benchmark interest rate unchanged at 5.25%-5.50% at its meeting on Wednesday.

Policymakers struggled to determine whether financial conditions may be tight enough already to control inflation, or whether an economy that continues to outperform expectations may need still more restraint.

US inflation held at 3.4% in September for the third consecutive month.

“There is still some way to go to achieve the 2% target [for inflation], nonetheless monetary tightening has been working effectively and additional rate increase would probably do more harm than good,” said Tamas Varga, an analyst at broker PVM.

In Europe, a contraction in manufacturing activity in the eurozone deepened in October, with the Purchasing Managers’ Index (PMI) falling 0.3 points on the month to 43.1. A score of below 50 signals contraction.

A Bank of England meeting later on Thursday is expected to result in interest rates being held steady.

Investors will also be watching for developments in the Middle East, which has kept oil markets on edge as a wider conflict could disrupt supplies around the region.

Fighting raged on around Gaza City on Thursday as advancing Israeli tanks and troops encountered fierce resistance from Hamas militants.

Reuters