Oil prices dipped in early European trading on Wednesday as markets braced for the Federal Reserve’s upcoming interest-rate decision. Concurrently, ongoing disruptions in the Middle East, coupled with advances by Houthi forces, have sustained concerns over supply risks in the region.
U.S. Crude Inventories Increase Amid Strong Dollar
Recent data from the American Petroleum Institute indicates that U.S. crude inventories rose by 7.1 million barrels last week. This increase has contributed to easing immediate supply concerns in the market.
The rise in inventories coincided with a strong U.S. dollar and elevated Treasury yields, factors that have influenced market dynamics. Soojin Kim from MUFG noted these developments, highlighting their significance in the current economic landscape.
Norway’s Johan Sverdrup, a medium-sour crude similar in quality to some Middle Eastern grades, jumped $7.265 a barrel Tuesday to reach a record premium of $19.55 over Dated Brent, according to S&P Global Commodity Insights. The Federal Reserve is due to announce its interest-rate decision later Wednesday following a two-day policy meeting and is widely expected to raise its benchmark rate for the first time since 2023.
Saudi Arabian Oil Co., known as Aramco, is also reportedly delaying shipments to some European customers following attacks on the pipeline, forcing refiners to seek replacement cargoes, UOB Global Economics & Markets Research said in a note. The Saudi East-West Pipeline shutdown triggered a further rush for replacement barrels in the North Sea, S&P said. Higher interest rates can weigh on economic activity and, in turn, oil demand. The disruption in the Middle East is already reshaping Europe’s physical crude market. European refiners have increasingly turned to Johan Sverdrup as a relatively nearby replacement for Middle Eastern barrels, with shipping risks around Hormuz, stronger Asian demand and delays to Middle East cargoes tightening supplies of sour crude.
