Why are oil costs falling in the present day regardless of Center East provide dangers? Fed, sturdy greenback and US shares weigh
Oil prices moved lower on Wednesday even as Middle East supply risks remained high. Brent crude futures fell 1.1% to $107.55 a barrel. West Texas Intermediate (WTI) crude fell 1.6% to $104.11 a barrel. Despite Wednesday’s fall, both oil benchmarks remained close to four-month highs.
On Tuesday, Brent and WTI had settled at their highest levels since May 19, showing that oil prices are still elevated despite the latest pullback.
Fed rate decision puts pressure on oil
The biggest reason for the fall is the Federal Reserve’s interest-rate decision. The US Federal Reserve is set to announce its interest-rate decision later Wednesday after a two-day policy meeting. The Fed is widely expected to raise its benchmark interest rate for the first time since 2023.
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Higher interest rates can slow economic activity because borrowing becomes more expensive for consumers and businesses. A weaker economy can reduce fuel consumption and, in turn, lower demand for crude oil. This is putting pressure on oil prices even though there are still serious supply risks in theMiddle East
Strong dollar weighs on oil prices
Oil prices also came under pressure from elevated US Treasury yields, adding to the market’s focus on tighter financial conditions. The combination of a stronger dollar and high Treasury yields is therefore limiting oil’s gains.
US oil inventories rise by 7.1 million barrels
Data from the American Petroleum Institute (API) showed that US crude inventories increased by 7.1 million barrels last week.
A rise in inventories means there was more crude available in the US than previously expected. This helped reduce some immediate concerns about tight oil supplies. MUFG’s Soojin Kim said the inventory increase helped ease some of the near-term supply concerns
Ongoing disruptions in the region and advances by Iran-backed Houthi militants continue to threaten crude supply and shipping routes. The risks are especially important because the Middle East is a major quickly tighten global crude supplies and push prices higher
Saudi pipeline faces weeks of repairs
Drone attacks forced Saudi Arabia to shut down parts of thepipeline. Saudi Arabia is now trying to resume partial operations within days. However, damaged pumping stations could take six to eight weeks to fully repair
The 750-mile East-West Pipeline can transport as much as 7 million barrels of oil a day to the Red Sea port of Yanbu. This pipeline is important because it gives Saudi Arabia another export route when shipments through the Strait of Hormuz face problems.
Middle East shipping risks stay high
Saudi Arabian Oil Co., better known as Aramco, is reportedly delaying some shipments to European customers after the pipeline attacks. European refiners are therefore having to look for replacement cargoes. UOB Global Economics & Markets Research highlighted the shipment delays in a research note
The Strait of Hormuz is one of the world’s most important oil shipping routes. The International Maritime Organization had recorded 80 confirmed maritime incidents in the Strait of Hormuz and the wider Middle East since the conflict began. The figure was recorded as of September 15.
Europe turns to Norway for replacement oil
European refiners are looking for alternatives because some Middle Eastern crude shipments have been delayed. One major replacement-sour crude that is similar in quality to some Middle Eastern oil grades
Johan Sverdrup crude jumped $7.265 a barrel on Tuesday. It reached a record premium of $19.55 a barrel over Dated Brent
Oil falls despite tight crude supplies
Johan Sverdrup is relatively close to European refineries compared with crude shipped from the Middle East. Refiners are increasingly using it as a replacement forMiddle Eastern barrels. Shipping risks around the Strait of Hormuz, stronger Asian demand and delays in Middle East cargoes are all tightening supplies of sour crude in Europe
The decline is mainly coming from financial and demand concerns, rather than the Middle East risks disappearing. The expected Fed rate hike could slow economic activity and oil demand. A stronger US dollar makes dollar-priced crude more expensive for international buyers, while higher Treasury yields are also putting pressure on markets.
The 7.1-million-barrel rise in US crude inventories has also eased some immediate supply worries. At the same time, Middle East attacks, shipping disruptions and delayed Saudi cargoes are keeping the longer-term supply outlook tight.
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Source: www.hindustantimes.com
