Oil pulls back from four-month highs as Fed rate hike looms

Crude oil futures retreated on Wednesday after hitting four-month peaks, as reports that Saudi Arabia was offering additional crude cargoes via Oman eased concerns about supply disruptions stemming from the ongoing Iran conflict. The pullback sent relief through bond and equity markets ahead of the Federal Reserve's widely anticipated interest rate decision.

Oil Drops but Remains Elevated

Brent crude settled down 2.7% at $105.83 per barrel, while West Texas Intermediate fell 3.2% to $102.43, according to the Wall Street Journal News Corp ↘ 0.03%. The declines came after oil had climbed steadily in recent weeks, with Brent rising roughly 19% over the past month alone. A reported 7.1 million-barrel build in U.S. crude inventories added to the downward pressure.wsj+2

Despite Wednesday's losses, oil remains far above pre-conflict levels. Brent was trading around $70 per barrel before the U.S. and Israel struck Iran in late February, according to the Associated Press. Saudi Arabia's key East-West Pipeline remains offline, Yemen's Iran-backed Houthi rebels continue targeting infrastructure and Red Sea shipping, and Iran is still disrupting vessel traffic in the Strait of Hormuz. The sustained supply disruptions have pushed U.S. gasoline to a national average of $4.37 per gallon, up from $4.22 a week earlier, while diesel has climbed to $6.31 per gallon, according to AAA data cited by AP.kitco+1

Bond Markets Find Relief

The easing in oil prices offered a reprieve to global bond markets, which have been under intense pressure from rising energy-driven inflation expectations. Germany's 10-year Bund yield dipped 3 basis points to 3.504% after touching 3.5723% on Tuesday, its highest since June 2009, Reuters reported. The benchmark 10-year U.S. Treasury yield also fell 4 basis points after reaching 5.041% on Tuesday, its highest since July 2007.reuters

"While the increase in oil prices was still the major driver of late, a determined Fed could calm investors' nerves, at least at the long-end," said Commerzbank rate strategist Hauke Siemssen.reuters

Fed Decision Looms

Markets were positioning for the Federal Reserve to raise interest rates by a quarter point to a range of 3.75% to 4.00%, its first hike in more than three years. The S&P 500 rose 0.3% on Wednesday, on track for just its second gain in eight days, while the Dow Jones Industrial Average added 61 points and the Nasdaq Composite gained 0.4%. In Europe, the FTSE 100 rose 0.6%, France's CAC 40 climbed 0.4%, and Germany's DAX gained 0.3%.wwaytv3

Fed Chair Kevin Warsh has largely signaled the move after warning last month that inflation remains well above the Fed's 2% target, putting him on a collision course with President Donald Trump, who has called for rate cuts.wwaytv3