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(Bloomberg) -- Oil fell as investors weighed the odds of a slowdown in the US driven by the Federal Reserve raising rates against signs energy markets are tight.

West Texas Intermediate dropped toward $107 a barrel after closing up 1% on Tuesday. With investors concerned about the impact of higher US interest rates, Fed Chair Jerome Powell is due to testify before Congress later Wednesday on his quest to reduce inflation that’s raging at the fastest pace in decades.

President Joe Biden will call for a gasoline tax holiday, a person familiar with the plan said, as prices at the pump keep rising. The average US retail price for the fuel topped $5 a gallon this month after surging more than 50% in 2022.

Oil is headed for a ninth quarterly gain as the fallout from the war in Ukraine and rising consumption offset concerns about a broad economic slowdown. Supermajor Exxon Mobil Corp. warned this week that crude markets may remain tight for years, while Vitol Group, the world’s largest independent oil trader, flagged rising fuel demand in China. At the same time, soaring margins are offering refineries an incentive to buy every barrel of crude they can get.

“Broader macro influences have been dictating price direction for oil recently,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “However, fundamentally the market still remains constructive. The oil balance is set to be tight for the remainder of the year, while in the shorter term strong refinery margins should be supportive for crude demand.”

Oil markets remain in backwardation, a bullish pattern that’s marked by near-term prices trading above longer-dated ones. Brent’s prompt spread -- the difference between its two nearest contracts -- was $2.89 a barrel in backwardation, compared with $2.73 a barrel at the start of this month.

“With commodity demand above supply, markets remain tight even as growth rates slow, as evidenced by the high level of prompt backwardation in key markets like oil,” Goldman Sachs Group Inc. said in a note. “Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment.”

Oil in Retreat as Slowdown Risks Weighed Against Robust Demand

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