Oil prices fell in early trading on Monday, extending a decline from the two-month high reached last week as the United States and Iran refrained from launching further military strikes in the Persian Gulf.
Brent crude for September delivery fell 4.66 per cent to $92.27 a barrel, while US West Texas Intermediate crude dropped 5.02 per cent to $84.83.
Brent, the international benchmark, briefly reached $102 a barrel last week. That was about $30 higher than the most actively traded contract had been at the beginning of the month and marked the highest level since May.
Oil prices had risen sharply this month as fighting in the Middle East intensified and markets grew concerned that a return to full-scale war could further disrupt global crude supplies.
The safety of tanker traffic through the Strait of Hormuz has remained a major concern for energy markets since the United States and Israel attacked Iran in late February. The narrow waterway off Iran’s coast carries about one-fifth of the world’s oil supplies from the Persian Gulf to international markets.
The conflict has severely reduced shipping activity through the strait, forcing producers and exporters to seek alternative routes. Those routes have also come under pressure, with attacks last week targeting Saudi oil tankers travelling through the Red Sea.
Any prolonged reduction in available crude supplies could push prices higher and raise fuel costs for consumers and businesses.
The latest decline in oil prices comes as inflation had begun to ease more quickly than many economists expected. However, the recent surge in energy prices has renewed concerns about the outlook for consumer prices.
Traders are now pricing in a 36 per cent chance that the Federal Reserve will raise its main interest rate at an upcoming meeting, according to CME Group data.
Higher interest rates can help reduce inflation by limiting borrowing and spending, but they can also slow economic activity by making loans more expensive for households and businesses.
Although oil prices have surrendered part of their substantial July gains, uncertainty remains high. Markets continue to monitor developments in the Middle East, the safety of key shipping routes and the potential impact of ongoing geopolitical tensions on global crude supplies.
Any renewed military action or further attacks on alternative shipping routes could quickly push prices higher again, while a sustained diplomatic pause could allow supply concerns to ease.
