Oil prices fall as Fed rate cuts loom amid Middle East tensions

Oil prices declined on Wednesday, poised to break a two-day rise, as the U.S. Federal Reserve was expected to cut interest rates amid weak economic data, which dampened demand concerns. Despite the potential for increased tensions in the Middle East, prices struggled to gain traction.

As of 0458 GMT, Brent crude futures for November dropped 45 cents (0.6%) to $73.25 per barrel, while U.S. crude futures for October slid 48 cents (0.7%) to $70.71 per barrel.

ANZ analysts told Reuters that weak macroeconomic data is fueling demand concerns, with money managers turning negative for the first time since 2011. The end of peak summer demand is also weighing on market sentiment.

However, concerns about potential supply disruptions from the Middle East offered some support after thousands of explosions targeted Hezbollah in Lebanon.

Mitsuru Muraishi of Fujitomi Securities told Reuters that investors are focusing on the Fed's potential rate cuts, which could boost U.S. fuel demand and weaken the dollar. Traders expect the Fed to lower interest rates by 0.5 percentage points, a move that could pressure the central bank to follow through.

Hezbollah has vowed retaliation after explosive devices reportedly detonated in Lebanon, killing 9 people and injuring thousands, including Iran’s ambassador to Beirut.

Additionally, the market is supported by expectations of U.S. oil purchases for the Strategic Petroleum Reserve (SPR).

Analysts, polled by Reuters, estimated a drop in U.S. crude inventories by about 500,000 barrels last week, with the Energy Information Administration's report set to release later on Wednesday.