Oil Prices Ease as Markets Balance Geopolitical Risks and Fed Rate Outlook
Oil prices edged lower in Asian trading on Wednesday, following a sharp 4% surge the previous day. Investors are weighing the risk of supply disruptions from the escalating Iran-Israel conflict against potential demand pressures tied to an upcoming Federal Reserve interest rate decision.
As of 06:20 GMT, Brent crude futures were down 49 cents (0.6%) at $75.96 a barrel, while U.S. West Texas Intermediate (WTI) futures slipped 38 cents (0.5%) to $74.46. Both benchmarks had initially risen 0.3% to 0.5% in early trading.
The pullback comes after U.S. President Donald Trump on Tuesday called for Iran’s “unconditional surrender,” as the aerial conflict between Iran and Israel entered its sixth day. According to U.S. officials, Washington is deploying additional fighter jets to the region to reinforce its military presence.
Adding to concerns, Israel is reportedly running low on “Arrow” missile interceptors, according to a Wall Street Journal report citing a U.S. official. This shortage has heightened fears over Israel’s ability to defend against long-range Iranian missiles.
Analysts remain focused on the potential for supply disruptions, particularly through the Strait of Hormuz—a vital channel for about 20% of the world’s seaborne oil shipments. Iran, OPEC’s third-largest producer, pumps roughly 3.3 million barrels of crude per day.
Fitch analysts noted that while significant disruption to Iranian oil exports could drive prices higher, spare capacity within the OPEC+ alliance—estimated at around 5.7 million barrels per day—could offset any potential shortfall. They estimate the current geopolitical risk premium on oil at $5 to $10 per barrel, with Brent gaining around $10 in the past two weeks.
Markets are also closely watching the Federal Reserve’s policy meeting, which concludes Wednesday. While the Fed is widely expected to hold its key interest rate steady at 4.25%–4.50%, recent global instability and signs of a slowing U.S. economy have prompted speculation about a possible rate cut as early as July.
Tony Sycamore, market analyst at IG, suggested the conflict could lead the Fed to adopt a more dovish tone—similar to its response after the October 2023 Hamas attacks. Lower interest rates typically support economic activity and boost energy demand.
However, rising oil prices caused by the Middle East conflict could also introduce new inflationary pressures, complicating the Fed’s decision-making. Compounding matters, recent economic indicators point to a decelerating U.S. economy, with uncertainty further fueled by President Trump’s unpredictable policy stance.
