Oil prices eased considerably in early trading on Sunday, falling further from two-month highs after the United States and Iran refrained from launching military strikes in the Persian Gulf for a second consecutive day. Brent crude, the international standard, for September delivery dropped 4.9% to $92.02 a barrel, following a 3.9% decline on Friday. The more actively traded October Brent crude fell 4.6% to $87.48. Benchmark U.S. oil for September delivery saw a 5.6% decrease to $84.34 a barrel on Sunday, after a 3.1% fall on Friday. This respite comes after Brent briefly touched $102 a barrel last week, marking a roughly 27% increase over the past two weeks due to escalating US-Iran tensions.
The central concern for the oil market has been the ability of tankers to navigate the Strait of Hormuz, a narrow waterway off Iran’s coast through which one-fifth of the world’s oil typically passes. The conflict has largely halted shipping traffic, leading oil producers to seek alternative, but also vulnerable, routes. Last week, Saudi oil tankers using the Red Sea were attacked, further exacerbating supply concerns. Despite the recent pause in strikes, a global commodities analytics firm, Kpler, expects the Strait of Hormuz to remain closed until 2027, a longer disruption than the market had initially priced in.
The decline in oil prices provides some relief, especially considering that the average price for a gallon of regular gasoline in the U.S. was $4.11 on Sunday, up from $3.90 a month ago and $3.15 a year ago, according to AAA. Elevated oil prices had surged this month just as inflation had begun to slow more than economists expected. Now, traders are betting on a 36% chance that the Federal Reserve will hike its main interest rate at an upcoming meeting, reflecting renewed inflation pressures. Although the U.S. economy continues to grow, consumer confidence has been affected by the ongoing conflict with Iran.
