Hindustan Times ·
Economy, business and finance
Why are oil prices falling today despite Middle East supply risks? Fed, strong dollar and US stocks weigh
Oil prices fall as Fed rate hike expectations, a strong dollar and higher US crude inventories weigh on demand despite ongoing Middle East supply risks.
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.
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.
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 the Middle East, according to The Wall Street Journal.
Oil is traded globally in US dollars. When the dollar becomes stronger, crude oil becomes more expensive for buyers using other currencies. This can reduce demand and put downward pressure 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.