Oil prices eased in Asian trading on Wednesday after gaining over 4% the previous day. This came as markets balanced concerns about possible supply disruptions from the ongoing Iran-Israel conflict with expectations around the U.S. Federal Reserve’s upcoming interest rate decision, which could affect oil demand.
Brent crude futures dropped 35 cents, or 0.5%, to $76.10 per barrel, while U.S. West Texas Intermediate crude fell 23 cents, or 0.3%, to $74.61 per barrel by early Wednesday.
The conflict entered its sixth day amid heightened tensions. U.S. President Donald Trump called for Iran’s “unconditional surrender” on Tuesday. Meanwhile, Israel faces shortages of defensive “Arrow” missile interceptors, raising concerns about its ability to counter long-range ballistic missiles from Iran.
Market analysts remain mostly worried about potential supply disruptions in the Strait of Hormuz, a critical passage for about one-fifth of the world’s seaborne oil. Iran, the third-largest OPEC oil producer, extracts roughly 3.3 million barrels per day. However, other OPEC members and allies have spare capacity estimated at around 5.7 million barrels per day, which could offset any loss of Iranian output.
Some analysts maintain a bullish outlook on U.S. crude in the near term due to rising geopolitical risks and relatively low speculative net long positions on WTI futures.
Investors are also watching the Federal Reserve’s two-day meeting, where the central bank is expected to keep interest rates steady between 4.25% and 4.50%. Yet, the conflict and fears of slowing global growth might prompt an earlier-than-expected rate cut, possibly in July instead of September. Lower rates typically support economic growth and oil demand. However, rising oil prices from the conflict could add inflationary pressure, complicating the Fed’s decision.
In summary, oil markets are caught between geopolitical risks that could tighten supply and economic factors that might reduce demand, leading to cautious price movements as the Iran-Israel conflict persists.
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