Oil prices reversed course on Wednesday as investors weighed deadlocked US-Iran talks and renewed shipping attacks in the Middle East against a mild US inflation reading that cooled bets on a Federal Reserve rate hike. Brent crude slipped to $88.68 a barrel and U.S. crude to $82.79, even as the Strait of Hormuz stayed a flashpoint.
Brent crude futures fell 0.26% to $88.68 per barrel. U.S. crude fell 0.49% to $82.79. Both benchmarks had settled more than $1 higher on Tuesday, marking their highest closes since July 31, before Wednesday's pullback.
Iran talks stay deadlocked
Talks between the United States and Iran remained deadlocked. The United States and Yemen's Iran-aligned Houthis reported separate ship attacks, and both Iran and the U.S. stepped up their rhetoric in recent days. Iran's most senior security official said Tuesday that the Strait of Hormuz will remain closed unless the U.S. accepts Iran's conditions.
Markets kept following talks to end the war and reopen the strait to shipping traffic. Investors have stayed calm regardless. Oil prices dipped anyway as traders weighed lower demand forecasts, even though Wednesday's data did not capture the most recent rise in oil prices, which have hurtled higher amid tensions over the U.S. and Iran.
Inflation reading tempers rate-hike bets
U.S. consumer prices increased 0.1% in July, in line with expectations. The small rise could weaken the case for an interest rate increase from the Federal Reserve next month, after money markets had priced in a roughly 50% chance of a hike heading into the release. Robert Pavlik, senior portfolio manager at Dakota Wealth, said the data eases concerns that the Fed is being pushed toward a hike by inflation fueled by higher energy prices.
Spot gold, meanwhile, rose 1.61% to $4,436.99 an ounce as the data dented rate-hike bets.
Schroders sees a floor under oil
Dorian Carrell, head of multi-asset income at Schroders, said the base case has long been a gradual but messy de-escalation, and that traffic through the Strait of Hormuz is unlikely to return to full capacity. According to Schroders, the lack of full capacity "puts a floor on the oil price" and keeps an energy-driven inflationary driver in markets over the near to medium term.
Sources: Economy News, Reuters
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