In volatile trading Brent crude futures for August were up 15 cents, or 0.1%, at $121.32 a barrel as of 0422 GMT after falling to as low as $120.65 earlier in the session on the back of a 0.9% decline on Tuesday.
U.S. West Texas Intermediate crude for July rose 15 cents, or 0.1%, to $119.08 a barrel, after hitting a low of $118.22 earlier in the day, having dropped 1.7% a day earlier.
Surging inflation has led investors and oil traders to brace for a big move by the Fed this week - a 75-basis-point increase, which would be the largest U.S. interest rate hike in 28 years. read more
"An aggressively hawkish signal from the (U.S.) Fed may increase concerns of a global recession, which may dampen the demands of the energy market," said Leona Liu, analyst at Singapore-based DailyFX.
"If the Fed announces a 75-basis-points hike tonight, oil prices may be notably weak against the dollar in the short term as a hawkish Fed may push investors flow into safe-haven dollar and hit risk-sensitive assets like oil."
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.
The country's economy, however, showed signs of recovery in May after slumping in the prior month as industrial production rose unexpectedly.
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.
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.
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