Oil Prices Decline as U.S. Changes Plan on How to Fight Iran
Oil prices fell on Wednesday as Washington’s shift from military strikes to economic pressure on Iran eased immediate supply fears. At the same time, uncertainty over the reopening of the Strait of Hormuz and expectations for another Federal Reserve (Fed) rate hike by year-end added downward pressure.
International benchmark Brent crude futures for November delivery traded at $85.49 per barrel at 09.52 a.m. local time (0652 GMT), down 2% from the previous close of $87.27.
US benchmark West Texas Intermediate (WTI) crude futures for October delivery traded at $80.45 per barrel, down 0.6% from $80.98.
US Secretary of State Marco Rubio has told several allied foreign ministers that Washington does not expect to launch new strikes against Iran “for the time being,” signaling a shift toward economic and maritime pressure, Axios reported Tuesday.
Citing US officials, the report said Washington plans to intensify economic pressure on Tehran through a naval blockade and tighter sanctions, while seeking to facilitate as much Iranian oil as possible through the Strait of Hormuz into global markets.
However, Washington has not ruled out military action if Iran strikes first.
The reduced prospect of renewed US strikes eased immediate concerns over a military escalation that could further disrupt regional oil supplies. In contrast, Washington’s plans to facilitate Iranian crude flows through Hormuz further eased supply fears.
Escalating trade tensions are also weighing on oil prices by clouding the global economic and demand outlook.
Moreover, news that Iran has agreed with Oman to establish a temporary transit route through the Strait of Hormuz further pressured prices by easing market players’ supply concerns.
Iran has agreed with Oman to establish a temporary seven-mile-wide transit route through the Strait, Iranian Deputy Foreign Minister Kazem Gharibabadi said Tuesday.
Gharibabadi said the two countries would hold further negotiations over the next 30 to 60 days to determine a permanent route and future arrangements for passage through the strategic waterway.
However, he stressed that the temporary arrangement does not amount to reopening the strait, saying Iran would only reopen it after the US fulfills its commitments under the Islamabad Memorandum of Understanding, including ending the war and lifting the blockade.
Meanwhile, persistent US inflation concerns are weighing on oil prices by keeping expectations of another Fed rate hike alive, while data pointing to a rise in US crude inventories add to bearish sentiment.
Investors are closely watching US economic growth data and the personal consumption expenditures (PCE) price index due later Wednesday, the Fed’s preferred inflation gauge, for further clues on the central bank’s policy path.
Analysts said a potential slowdown in the core PCE price index, which excludes volatile food and energy prices, could shift expectations for another rate hike by year-end and increase market volatility.
Higher interest rates could slow economic activity and weaken energy demand while strengthening the US dollar, making dollar-denominated oil more expensive for holders of other currencies and further weighing on prices.
The US Dollar Index, which tracks the greenback against a basket of major currencies, rose by 0.1% to 99.01.
The American Petroleum Institute (API) estimated that US commercial crude oil inventories rose by 4.2 million barrels last week, compared with market expectations for a 1.8 million-barrel increase.
The larger-than-expected build signaled weaker demand in the world’s largest oil consumer, adding to downward pressure on prices. #Oil Prices Decline as U.S. Changes Plan on How to Fight Iran# Oil Prices Slip to 6-Week Low, Brent Falls Below $70
