Oil prices slipped in Asian trading on Wednesday, cooling from recent strong gains after industry data indicated an unexpected accumulation of crude in U.S. storage. Traders also exercised caution ahead of the Federal Reserve's policy decision later in the day, as markets weighed the prospect of hawkish signals against rising inflation concerns linked to higher oil prices driven by the Iran conflict.
Even with the pullback, crude markets retained an overall bullish tone on the expectation that supply interruptions stemming from the U.S.-Israel confrontation with Iran will persist, with few signs of an easing in tensions as the conflict passed the three-week mark.
Price moves
By 21:25 ET (01:25 GMT), Brent futures had declined about 1% to $102.43 a barrel, while West Texas Intermediate contracts were down roughly 1.2% at $94.14 a barrel.
Inventory surprise from API
Industry figures published by the American Petroleum Institute late Tuesday showed U.S. oil inventories rose by 6.60 million barrels over the past week, a sizeable surprise compared with market expectations for a 0.6 million-barrel draw. The API release is often a precursor to the official government inventory report, which was scheduled for release later on Wednesday.
An unexpected rise in stockpiles is typically interpreted as an indicator of ample supply and can exert downward pressure on prices, a dynamic that helped cool some of the recent rally.
Central banks in focus
Beyond the immediate inventory read, attention was firmly fixed on the Federal Reserve's meeting outcome. The central bank was expected to hold interest rates steady, but markets were poised to scrutinize guidance on future policy in light of rising inflationary pressures tied to higher oil costs. A number of other major central banks were also scheduled to meet later in the week, keeping policy risk on investors' radar.
Geopolitical developments
Geopolitical developments continued to shape the market backdrop. Reports indicated that the United Arab Emirates may join a U.S.-led effort to protect shipping through the Strait of Hormuz - a critical route that authorities say provides at least a fifth of the world's oil flows - after Iran effectively closed the waterway in response to attacks by the U.S. and Israel.
Despite talk of the UAE potentially participating in policing the strait, most other U.S. allies had previously declined calls from President Donald Trump to assist in securing the shipping lane.
Market participants noted an escalation in Iranian operations against ships in and around Hormuz following strikes by the U.S. and Israel on a significant Iranian export terminal. Overnight reports said Ali Larijani, identified as Iran's security chief, was killed in an Israeli strike - an incident that market observers suggested could prompt further retaliatory action from Tehran.
Such developments underpinned crude prices even as the inventory data offered a near-term bearish signal. Brent had climbed more than 40% since the outbreak of the war in late-February, reflecting the market's sensitivity to supply risk.
Analysts at OCBC noted in a client communication that they expect oil to remain above $100 per barrel until at least mid-2026, citing the continued Iran-related disruption as a structural support for crude amid limited pathways to de-escalation.
Bottom line
Short-term price pressure emerged from the unexpected U.S. inventory build and the prospect of firmer central bank rhetoric, but ongoing geopolitical tensions tied to the Iran conflict continue to provide an upside risk to crude, keeping prices elevated despite the pullback.