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Oil prices fell in volatile trading on Thursday as market participants weighed the likelihood of U.S. involvement in the ongoing Israel-Iran conflict, while a stronger dollar provided resistance to recent gains in crude prices.
Initially, oil prices dropped as much as 1% during early Asian trade, but the losses were quickly pared after Bloomberg reported that U.S. officials were preparing for a potential military strike on Iran as soon as this weekend.
Brent oil futures for August fell 0.4% to $76.39 per barrel, while U.S. West Texas Intermediate (WTI) crude futures declined 0.2% to $73.34 per barrel by 21:56 ET (01:56 GMT).
Speculation Over U.S. Military Action Against Iran
According to Bloomberg, U.S. officials are preparing for the possibility of a strike against Iran, with the weekend seen as a potential window for military action. However, the situation remains unclear, and no official confirmation of the strike’s timing has been given.
President Donald Trump has taken a hardline stance against Iran, calling for its “immediate surrender,” while also leaving open the possibility of nuclear talks. The situation is highly sensitive, and a direct U.S. strike against Iran would likely escalate tensions further, with Iran already warning against such an action.
Escalation of Israel-Iran Conflict
The conflict between Israel and Iran entered its seventh day on Thursday, with both sides continuing to launch attacks against each other. The intensifying violence has raised concerns about further disruptions to oil supplies from the region, which has contributed to the rally in oil prices over the past week. Prices have surged to near their highest levels since late January, driven by fears of a prolonged conflict that could disrupt oil flows from the Middle East.
U.S. Oil Inventory Data Boosts Prices
Earlier this week, a significant draw in U.S. oil inventories helped push oil prices higher, adding to the upward momentum. However, the rally appeared to cool as the U.S. dollar strengthened, which limited further gains in crude oil.
Oil Prices Face Resistance from Stronger Dollar
Oil prices found some resistance after a strong run-up in recent days, with the strengthening U.S. dollar acting as a limiting factor. The greenback rose sharply on Wednesday following the Federal Reserve’s decision to keep interest rates unchanged, signaling less urgency for future rate cuts. Fed Chair Jerome Powell noted that inflation is likely to rise due to President Trump’s planned trade tariffs, and any future rate cuts would be largely dependent on economic data.
Powell’s comments came after disappointing data earlier this week showed that U.S. retail sales and industrial production both missed expectations for May, highlighting some weaknesses in the U.S. economy.
Outlook for U.S. Fuel Demand
Despite these challenges, U.S. fuel demand is expected to increase in the coming months, particularly with the summer travel season driving higher consumption. This could provide additional support for oil prices in the near term, especially if geopolitical risks continue to fuel concerns over supply disruptions.
Oil prices are facing downward pressure amid rising geopolitical risks tied to the Israel-Iran conflict and the strengthening U.S. dollar. While the potential for a U.S. military strike on Iran has added to market uncertainty, oil prices remain supported by concerns over supply disruptions in the Middle East. The market is also awaiting further clarity from the Federal Reserve and will likely remain volatile as geopolitical tensions and economic data continue to influence sentiment.
