Oil Prices Dip as Weak Economic Data Outweighs Middle East Tensions and Fed Rate Expectations

Oil prices fell on Wednesday after two consecutive sessions of gains, with weak macroeconomic data weighing on demand and offsetting concerns about supply disruptions in the Middle East. Investors were also keeping an eye on the U.S. Federal Reserve’s upcoming interest rate decision, which could have bullish implications for crude markets.

As of 06:43 GMT, Brent crude futures for November delivery dropped 49 cents, or 0.7%, to $73.21 a barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures for October slid 50 cents, or 0.7%, to $70.69 a barrel.

Middle East Tensions and Supply Concerns

Tensions in the Middle East provided some support to oil prices. Reports emerged that Israel allegedly attacked Hezbollah with explosive-laden devices in Lebanon, raising fears of a broader conflict that could disrupt supply from the oil-rich region. The attacks reportedly resulted in the deaths of at least eight people and injuries to nearly 3,000 others, including Hezbollah fighters and Iran’s envoy to Beirut. Hezbollah has vowed retaliation, which could escalate tensions further.

Despite the geopolitical risks, weak economic indicators from major economies, particularly China and Europe, dampened demand prospects for crude.

U.S. Federal Reserve Rate Cut Anticipation

Traders remained focused on the U.S. Federal Reserve, which is widely expected to start a series of interest rate cuts with a significant 50-basis-point reduction at its meeting on Wednesday. This could potentially boost economic activity and increase oil demand, but markets are waiting to see if the central bank follows through on this anticipated move.

A lower interest rate would reduce borrowing costs, which could in turn support economic growth and lift energy consumption. However, uncertainty remains about the exact scale of the Fed’s easing cycle.

U.S. Crude Inventories and SPR Purchases

The market also found some support from expectations of U.S. oil purchases for the Strategic Petroleum Reserve (SPR), which could provide a temporary boost to demand. Additionally, analysts polled by Reuters estimated that U.S. crude inventories likely fell by about 500,000 barrels last week. The U.S. Energy Information Administration (EIA) is set to release its official data later on Wednesday, which will offer more insight into supply levels.

The combination of weak macroeconomic data, geopolitical risks, and central bank policy decisions is keeping oil traders on edge, with volatility expected to continue as markets await further developments.