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Oil prices rebounded on Thursday, with both benchmarks dropping around 5% in previous trade as supply concerns caused by Iran’s seizure of an oil tanker and renewed tensions between Ukraine and Russia overshadowed demand woes caused by the US Federal Reserve’s (Fed) decision to cut interest rates further.
International benchmark Brent crude traded at $73.33 per barrel at 10.41 a.m. local time (0741 GMT), a 1.38% increase from the closing price of $72.33 a barrel in the previous trading session.
At the same time, the American benchmark West Texas Intermediate (WTI) traded at $69.33 per barrel, up 1.06% from the previous session’s close of $68.60 per barrel.
Oil prices came under pressure ahead of the US Federal Reserve’s new monetary policy decision, as the world’s largest oil-consuming country battled high inflation.
However, demand concerns were alleviated after Iran’s Islamic Revolutionary Guards Corps (IRGC) confirmed the seizure of a foreign oil tanker in the Strait of Hormuz.
The reason for holding the oil tanker remains unclear, although the IRGC called the vessel a “violator.”
Wednesday’s incident comes a week after the Iranian army’s naval division seized a Marshal Islands-flagged “transgressor” tanker and directed it to the coastal waters of Iran in the Sea of Oman following an encounter with an Iranian vessel.
Supply concerns intensified after the Kremlin said two Ukrainian drones attacked the Kremlin residence of Russian President Vladimir Putin overnight on Wednesday, calling it a “terrorist” assassination attempt.
While Ukraine denied any involvement in the attack on the Kremlin, Russia confirmed it had opened a criminal case for the alleged drone attack by Ukraine.
Mounting demand woes
Although rising investor fears over a potential decline in oil demand in the US were eased with a decline in US commercial crude oil inventories, oil prices started to rally later on Wednesday with a much-anticipated interest rate decision by the US Fed.
US Federal Reserve Chair Jerome Powell said inflation has “moderated somewhat” since mid-2022 but “pressures run high.”
Powell’s comments came after the Fed made another hike of 25 basis points, carrying the target range for the federal funds rate to between 5% and 5.25% — its highest since August 2007.
Powell stressed that tighter conditions are likely to weigh on economic activity, hiring and inflation, but said the extent of their effects “remains uncertain.”
But he warned that the Federal Open Market Committee (FOMC) is prepared to do more if greater monetary policy restraint is warranted until the Fed brings inflation down to its goal of 2%.
“A decision to pause (rate hikes) was not made today. We will be approaching that question in the June meeting,” Powell said.
