Oil Prices Retreat as Mideast Supply Fears Ease, Hawkish Fed Boosts Dollar

Oil prices extended recent declines on Thursday, as signs of easing supply disruptions in the Middle East and a stronger U.S. dollar following a Federal Reserve rate hike weighed on the market. Brent crude futures edged down to $105.83 per barrel, while West Texas Intermediate (WTI) crude futures fell 0.2% to $102.21 by 9:36 PM ET (01:36 GMT).

Supply Concerns Abate

The downward pressure on prices followed reports that Saudi Arabia has begun increasing oil shipments via Oman. The kingdom is reportedly using ship-to-ship transfers near Oman's Port of Sohar to provide Asian refiners with more loading options, bypassing Red Sea shipping lanes threatened by Houthi militant attacks.

Sentiment was further calmed by diplomatic efforts. Reuters reported that the United States and Yemen's Iran-backed Houthi group held talks last weekend, where the militants reportedly reiterated a commitment to a 2025 ceasefire. On Wednesday, U.S. President Donald Trump also stated that he believed a conflict with Iran was "getting very close to an end."

Hawkish Fed and Stronger Dollar Add Pressure

Adding to the headwinds for oil, the U.S. Federal Reserve announced a 25-basis-point interest rate hike, bringing its benchmark rate to 4.0%. In his remarks, Fed Chairman Kevin Warsh warned that inflation remains too high, signaling that further increases could be necessary in the coming months.

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The central bank's hawkish stance propelled the U.S. dollar higher. A stronger dollar typically makes oil, which is priced in dollars, more expensive for buyers using other currencies, which can dampen demand.

Geopolitical Risks Limit Deeper Losses

Despite the day's decline, oil prices remain supported by persistent geopolitical tensions. Earlier in the week, Brent crude surged toward $110 per barrel after Houthi militants launched a major offensive against Saudi energy infrastructure, reportedly shutting down a key east-west pipeline.

Furthermore, a third consecutive weekly drop in U.S. crude inventories, as indicated by recent data, is helping to limit steeper price losses by pointing to tighter domestic supply. For the week, Brent crude is still up approximately 1.2%, reflecting the ongoing market volatility.