Why are oil prices falling today despite Middle East supply risks? Fed, strong dollar and US stocks weigh

Oil prices fell on Wednesday despite ongoing Middle East supply risks. Brent crude futures dropped 1.1% to $107.55 a barrel, while WTI crude fell 1.6% to $104.11 a barrel. Both oil benchmarks were near four-month highs on Tuesday. The primary reason for the price decline is the Federal Reserve's upcoming interest-rate decision, which is expected to raise rates for the first time since 2023.

Higher interest rates slow economic activity, reduce fuel consumption, and lower demand for crude oil. Oil is traded in US dollars, and a stronger dollar makes crude more expensive for buyers using other currencies, putting downward pressure on oil prices. Additionally, elevated US Treasury yields and a rise in US crude inventories by 7.1 million barrels last week contributed to the price drop.

US crude inventories increased because there was more crude available in the US than expected, reducing near-term supply concerns. However, ongoing disruptions in the Middle East, including drone attacks that forced Saudi Arabia to shut down parts of its pipeline, continue to threaten crude supplies. Saudi Arabia is working to resume partial operations, but repairs could take six to eight weeks.

The 750-mile East-West Pipeline, which helps Saudi Arabia export oil, is also affected by pipeline attacks. Saudi Arabian Oil Co., or Aramco, is delaying shipments to European customers. European refiners are seeking alternatives, such as Norway's Johan Sverdrup crude, which has risen in price due to increased demand from Europe.

Despite these factors, the long-term supply outlook remains tight due to Middle East attacks, shipping disruptions, and delayed Saudi cargoes.