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Investing.com-- Oil prices rose slightly in Asian trade on Wednesday, recovering from their worst month in five as traders priced in a smaller risk premium from the Israel-Hamas war, with focus now turning to a Federal Reserve decision on interest rates.

Markets also digested somewhat mixed industry data on U.S. oil inventories, which showed that while overall inventories grew, gasoline and distillate stockpiles fell sharply.

Oil prices plummeted in recent sessions amid increasing bets that the Israel-Hamas will not meaningfully affect Middle Eastern crude flows, especially as no other Arab powers appeared to have joined the conflict. 

Still, the World Bank warned that the conflict could yet affect oil supplies and send prices soaring. But the organization also forecast weak oil prices through 2024, amid slowing global economic growth. 

Fears of weak Chinese demand also weighed on oil markets, following disappointing factory activity readings from the world’s largest oil importer on Tuesday. The readings, which came on the heels of dismal business activity reports from the euro zone, added to concerns over a slowdown in global economic growth.

Crude saw some degree of bargain buying, as some traders held out hope that tighter supplies will still offset weakening demand in the coming months. 

Brent oil futures rose 0.2% to $85.37 a barrel, while West Texas Intermediate crude futures rose 0.3% to $81.28 a barrel by 20:09 ET (00:09 GMT). Both contracts tumbled more than 10% in October, their worst month since May. 

Dollar strength limits oil recovery ahead of Fed rate decision

Pressure from the dollar limited any major recovery in oil prices, as the greenback stayed near a 11-month high in anticipation of the Fed decision.

After hiking rates by 500 basis points over the past year, the central bank is widely expected to keep rates on hold at the conclusion of a meeting later in the day. But it is also expected to reiterate that rates will remain higher for longer, amid recent signs of sticky U.S. inflation, labor market strength, and economic resilience. 

Fed officials have also left the door open for at least one more hike this year, which could potentially come during a December meeting. Higher rates are expected to stymie economic activity in the coming months, potentially weighing on demand in the world’s largest fuel consumer. 

US crude stockpiles see small build, gasoline and distillates shrink- API

Data from the American Petroleum Institute (API) showed on Tuesday that U.S. oil inventories likely rose 1.3 million barrels in the week to Oct 27, slightly less than expected.

Gasoline and distillate inventories fell sharply, although this could be largely attributed to maintenance activities among refiners. U.S. fuel demand usually weakens towards the end of the year, as the winter season dissuades driving.