Brent crude fell 4.9% to $92.02 after a second day without US-Iran strikes in the Gulf. Gasoline at $4.11 and traders see a 36% Fed rate hike chance. October Brent slipped to $87.48.
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Oil prices dropped sharply in early Sunday trading after the United States and Iran refrained from military strikes in the Persian Gulf for a second straight day, easing supply disruption fears.
Brent crude for September delivery fell 4.9% to $92.02 a barrel. That followed a 3.9% decline on Friday. The two-day retreat pulled the benchmark back from a two-month high touched last week, when it briefly reached $102 a barrel.
That level was the highest since May. The surge was driven by worries about shipping through the Strait of Hormuz, a narrow waterway off Iran’s coast that handles about a fifth of the world’s oil. The conflict has largely halted traffic there.
Oil producers have looked for alternative routes. Those have come under pressure as well. Last week, attacks hit Saudi tankers using the Red Sea to leave the region. The supply constraints pushed prices higher, and fuel costs rose for consumers.
In the United States, the average price for a gallon of regular gasoline stood at $4.11 on Sunday, according to motor club AAA. That was up from $3.90 a month ago and $3.15 a year ago. If oil prices stay elevated, the cost of every product shipped, trucked or flown around the world would rise, including groceries. Consumer confidence has already slipped.
The reacceleration of oil prices this month came after inflation had begun to slow more than economists expected. Now traders see a 36% chance the Federal Reserve will raise its main interest rate at its next meeting, according to CME Group data.
Higher rates would help keep inflation in check. They could also slow the economy by making borrowing more expensive for households and businesses.
Long-term US mortgage rates have already hit their highest levels in nearly a year, chilling the housing industry. More expensive borrowing could also slow the boom in building artificial-intelligence data centers, which have become a big engine for US economic growth.
In the futures market, the most actively traded contract shifted. Brent crude for October delivery fell 4.6% to $87.48 a barrel, overtaking the September contract in volume. The move reflects traders adjusting positions as the immediate supply threat recedes.
Still, uncertainty remains. The price for benchmark US crude for September delivery dropped 5.6% to $84.34 on Sunday, after a 3.1% decline on Friday.
Oil prices surged earlier this month because of increased fighting in the Middle East and concerns that a return to all-out war would further slow the global flow of crude. The two-day pause has bought some relief, the market's reaction suggests traders are pricing in a lower risk premium for now.
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