US interest rate change drives Brent lower

The front-month ICE Brent contract has declined by $3.62/bbl on the day, to trade at $104.28/bbl at 09.00 GMT.

IMAGE: Oil storage tanks. Getty Images

Upward pressure:

Brent crude’s price has continued to trade well above the $100/bbl threshold amid the worsening situation in the Middle East as the conflict rages on.

During his visit to Beijing, Iran’s foreign minister Abbas Araghchi said Iran welcomed a diplomatic resolution to the ongoing crisis in the Middle East, while remaining prepared to defend its national sovereignty, Al Jazeera reported.

“Today's decisions will decide future strategic balance in the region, with immeasurable knock-on effects,” Araghchi said on social media platform X.

As of Tuesday, nine vessels attempted to transit the Strait of Hormuz – two inbound and seven outbound – market intelligence provider Windward reported, as vessel traffic remains well below the pre-war average of 140 daily transits.

Downward pressure:

The US Federal Open Market Committee (FOMC) has increased its key interest rate by 0.25 percentage points to the range of 3.75-4%, marking the first hike since 2023.

Brent crude’s price has retreated following the US Federal Reserve’s (Fed) announcement, pulled lower by a stronger US dollar.

Higher interest rates in the US can dampen demand growth and make dollar-denominated commodities like oil more expensive for holders of other currencies.

The US Fed’s decision comes on the heels of the recent escalation in the Middle East – that has spiked Brent crude’s price and complicated the US central bank’s inflation outlook as it remains committed to achieving a 2% inflation rate over the longer run.

The oil market has “already moved on from the hike itself and into the only debate that really matters now: whether the Fed can deliver another one,” SPI Asset Management managing partner Stephen Innes noted.

By Aparupa Mazumder

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