Oil prices ease as Iran-Israel conflict enters sixth day
Oil prices
eased in Asian trade on Wednesday, after a gain of 4 per cent from the previous session, as markets weighed the chance of
supply disruptions
from the
Iran-Israel conflict
against a
US Federal Reserve
rates decision that could weigh on
oil demand
.
Brent crude futures
slipped 49 cents, or 0.6 per cent, to $75.96 a barrel by 0620 GMT. US West Texas Intermediate crude futures fell 38 cents, or 0.5 per cent, to $74.46 per barrel.
Both had initially been up 0.3 per cent to 0.5 per cent in early trade.
U.S. President Donald Trump called on Tuesday for Iran's "unconditional surrender" as the Iran-Israel air war entered a sixth day.
The US military is deploying more fighter aircraft to the region to bolster its forces, three officials said on Tuesday.
Israel is running low on defensive "Arrow" missile interceptors, however, raising concerns about its ability to counter long-range ballistic missiles from Iran, the Wall Street Journal said on Wednesday, citing an unidentified US official.
Analysts said the market was largely worried about supply disruptions in the Strait of Hormuz, a conduit for a fifth of the world's seaborne oil.
Iran is OPEC's third-largest producer, extracting about 3.3 million barrels per day (bpd) of crude oil, but spare capacity among producers in the Organization of the Petroleum Exporting Countries and its allies can readily cover this.
"Material disruption to Iran's production or export infrastructure would add more upward pressure to prices," Fitch analysts said in a client note.
"However, even in the unlikely event that all Iranian exports are lost, they could be replaced by spare capacity from OPEC+ producers ... around 5.7 million barrels a day."
Brent crude oil prices have gained about $10 a barrel over the past two weeks, and Fitch analysts said they expect the geopolitical risk premium in oil prices to be contained at about $5 to $10.
Markets are also looking ahead to a second day of U.S. Federal Reserve discussions on Wednesday, in which the central bank is expected to leave its benchmark overnight interest rate in the range of 4.25 per cent to 4.50 per cent
However, the conflict in the Middle East and the risk of slowing global growth could push the Fed to potentially cut rates by 25 basis points in July, sooner than the market's current expectation of September, said Tony Sycamore, market analyst with IG.
"The situation in the Middle East could become a catalyst for the Fed to sound more dovish, as it did following the October 7, 2023, Hamas attack," Sycamore said.
Lower interest rates generally boost economic growth and demand for oil.
Confounding the decision for the Fed, however, is that the Middle East conflict also creates a new source of inflation via surging oil prices.
Further, recent data showed the U.S. economy was slowing as Trump's erratic policymaking style fed uncertainty.
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