Oil prices edged lower in early European trading Wednesday ahead of the Federal Reserve’s interest-rate decision, while continuing disruptions in the Middle East and Houthi advances kept supply risks elevated.
The pullback came amid a strong dollar and elevated Treasury yields, while data from the American Petroleum Institute showed U.S. crude inventories rose by 7.1 million barrels last week, helping alleviate some immediate supply concerns, according to MUFG’s Soojin Kim.
Higher interest rates can weigh on economic activity and, in turn, oil demand. The disruption in the Middle East is already reshaping Europe’s physical crude market. European refiners have increasingly turned to Johan Sverdrup as a relatively nearby replacement for Middle Eastern barrels, with shipping risks around Hormuz, stronger Asian demand and delays to Middle East cargoes tightening supplies of sour crude.
Norway’s Johan Sverdrup, a medium-sour crude similar in quality to some Middle Eastern grades, jumped $7.265 a barrel Tuesday to reach a record premium of $19.55 over Dated Brent, according to S&P Global Commodity Insights. The Federal Reserve is due to announce its interest-rate decision later Wednesday following a two-day policy meeting and is widely expected to raise its benchmark rate for the first time since 2023.
Saudi Arabian Oil Co., known as Aramco, is also reportedly delaying shipments to some European customers following attacks on the pipeline, forcing refiners to seek replacement cargoes, UOB Global Economics & Markets Research said in a note. The Saudi East-West Pipeline shutdown triggered a further rush for replacement barrels in the North Sea, S&P said.
