Oil Prices Edge Lower as Middle East Supply Concerns Ease

Oil prices retreated on Thursday, extending recent losses as signs of cooling tensions in the Middle East eased immediate concerns over supply disruptions. The move came despite a supportive drawdown in U.S. inventories, as a stronger dollar following a U.S. interest rate hike added pressure on commodities.

By 21:36 ET (01:36 GMT), Brent crude futures, the international benchmark, traded near $105.83 a barrel. West Texas Intermediate (WTI) crude futures, the U.S. benchmark, fell 0.2% to $102.21 a barrel.

Diplomatic Overtures and Shifting Logistics

Two key developments helped temper the geopolitical risk premium in crude prices this week. According to reports, Saudi Arabia has begun moving more oil via ship-to-ship transfers off Oman's Sohar port, a strategy designed to bypass the Red Sea and ensure a steady flow of crude to Asian refiners.

Separately, Reuters reported that U.S. officials and Yemen's Iran-backed Houthis held talks over the weekend. The dialogue reportedly included a reiteration from the Houthis of their commitment to a 2025 ceasefire and an agreement not to attack U.S. or Israeli vessels.

Macroeconomic Headwinds and Lingering Risks

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Weighing on oil was a stronger U.S. dollar, which gained after the Federal Reserve raised interest rates by 25 basis points to 4.0%. Fed Chairman Kevin Warsh signaled that further hikes are likely to combat persistent inflation, a hawkish stance that typically strengthens the dollar and makes dollar-denominated commodities like oil more expensive for international buyers.

However, significant downside for crude was limited. Tensions between the U.S. and Iran remain high, with shipping through the critical Strait of Hormuz operating at a fraction of its pre-conflict capacity. Earlier in the week, prices had rallied after a Houthi offensive targeted Saudi energy infrastructure, underscoring the ongoing volatility in the region.

Weekly Gains Remain Intact

Despite the session's losses, oil prices are still on track for weekly gains. Brent crude is trading up 1.2% for the week, largely due to the earlier rally on supply disruption fears.

Underlying support for prices also came from U.S. inventory data, which showed a third consecutive weekly draw in domestic stockpiles, pointing to steady demand in the world's largest oil consumer.