Asian stocks rally as oil retreats, US Federal Reserve in spotlight

Asian shares rallied on Wednesday as oil prices paused gains, with markets turning to the US Federal Reserve meeting to see how policymakers will balance growth and inflation risk amid conflict in the Middle East.

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Israel intensified its offensive by killing Iran's security chief, while Iran renewed strikes on oil facilities in the United Arab Emirates. A senior Iranian official said the new supreme leader rejected deescalation offers conveyed by intermediaries, signalling no quick end to a war that has unleashed a global oil shock.

Oil prices took a breather on Wednesday after the Iraqi government and Kurdish authorities reached a deal to resume oil exports via Turkey's Ceyhan port, though the Strait of Hormuz remained largely closed. Brent crude futures dropped 2.28 to $101.09 a barrel while US West Texas Intermediate crude fell 3.38 to $93.05.

That proved to be a comfort for equity investors, with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.6% as South Korea surged more than 4%. Japan's Nikkei also rallied 2.6%. Chinese blue-chips bucked the trend with a decline of 0.5%.

Natasha Kaneva, head of global commodities research at JPMorgan, said apparent stability in Brent and WTI reflects a temporary buffer created by regional inventory overhang, benchmark composition and policy intervention.

"If the Strait does not reopen... Brent and WTI will ultimately reprice higher as Atlantic basin inventories are drawn down and the global market is forced to clear at a materially tighter supply level," she said.