Oil prices pulled back sharply from four-month highs on Thursday, easing from above $108 a barrel as Saudi Arabia moved to restore disrupted crude flows, while a US interest-rate increase added pressure to the market.
Brent crude was trading around $105.6 a barrel, down about 2.9%, while US West Texas Intermediate (WTI) fell 3.3% to around $102.3. The decline followed a drop of more than $3 in the previous session, when Brent had briefly climbed above $108 amid mounting concerns over Middle East supply disruptions.
The retreat came even as fighting between Saudi Arabia and Iran-backed Houthi forces intensified. The Houthis have continued attacks on Saudi targets and key Red Sea routes, while Saudi Arabia has responded with airstrikes in Yemen. The escalation has added to concerns over the security of oil shipments through the Red Sea and the Bab al-Mandeb Strait.
The market, however, has taken some comfort from Saudi efforts to restore alternative export routes after attacks forced the shutdown of its 1,200-km East-West pipeline, which normally carries crude from the kingdom's eastern oil fields to the Red Sea.
Saudi Arabia is seeking to restore about half of the pipeline's capacity within days, with full operations potentially taking several weeks. Riyadh has also offered additional crude cargoes to Asian buyers via Oman, helping to ease immediate concerns about the availability of physical supplies.
The US Federal Reserve's decision to raise interest rates also weighed on oil markets. The Fed increased its benchmark rate by 25 basis points to a range of 3.75% to 4%, its first rate increase since July 2023, and policymakers indicated that another increase could come before the end of the year.
Higher US interest rates can put pressure on crude prices by strengthening the dollar and increasing the cost of holding inventories, while tighter monetary policy can eventually slow economic activity and reduce demand for fuel.
Despite Thursday's retreat, analysts warned against interpreting the decline as a return to normal conditions.
Commodity analysts at Standard Chartered have argued that the continuing US-Iran stalemate and rising physical risks to regional oil exports should keep prices supported at a higher level. The continuing attacks on energy infrastructure and shipping routes mean that the market remains vulnerable to another sharp price increase if additional supplies are disrupted.
The scale of the underlying supply risk remains significant. The East-West pipeline can normally transport several million barrels of crude a day, while the Strait of Hormuz and Bab al-Mandeb remain critical links in global oil trade. The shutdown of the Saudi pipeline has therefore heightened the importance of alternative export routes and available spare capacity.
US crude inventories also provided little reason for a major bearish shift. The Energy Information Administration reported a 640,000-barrel decline in US commercial crude stocks, smaller than the expected draw of about 1.62 million barrels, according to market reports.
