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.
Brent crude futures fell 1.1% to $107.55 a barrel, while West Texas Intermediate declined 1.6% to $104.11 a barrel. Both benchmarks remained near four-month highs after settling Tuesday at their highest levels since May 19.
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.
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. Higher interest rates can weigh on economic activity and, in turn, oil demand.
Saudi Arabia is trying to resume partial operations within days on its East-West Pipeline after drone attacks forced its shutdown, though damaged pumping stations could take six to eight weeks to fully repair, The Wall Street Journal reported. The 750-mile pipeline can carry as much as 7 million barrels a day to the Red Sea port of Yanbu, providing an alternative export route when flows through the Strait of Hormuz are constrained.
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.
Shipping risks also remain elevated around the region's main export routes. As of Sept. 15, the International Maritime Organization had recorded 80 confirmed maritime incidents in the Strait of Hormuz and the wider Middle East since the conflict began.
Risks around Saudi Arabia's western export route have increased as Iran-backed Houthi militants expand their territorial gains around the Bab al-Mandeb Strait.
U.S.-Iran tensions also remain elevated. The U.S. military fired 60 to 70 Patriot interceptors and more than a dozen THAAD interceptors last week to counter an Iranian attack on Jordan involving about 20 ballistic missiles, U.S. and regional officials familiar with the matter told The Wall Street Journal.
The disruption in the Middle East is already reshaping Europe's physical crude market. 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. 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. The Saudi East-West Pipeline shutdown triggered a further rush for replacement barrels in the North Sea, S&P said.