Oil eased on Thursday, retreating from a seven-week high as traders reassessed the likelihood of Federal Reserve interest-rate reductions after fresh U.S. data suggested the economy is holding firmer than many had anticipated. West Texas Intermediate fell about 1.6% to $86.40 a barrel, while Brent slipped roughly 1.3% to $90.20, reversing part of the rally that sent benchmarks to their strongest levels since early August.

Market participants pointed to a string of U.S. releases — including a smaller-than-expected drop in core inflation measures and resilient consumer spending — that knocked back bets on a December rate cut. Fed funds futures trimmed the implied probability of a 25-basis-point cut this year to roughly 35% from about 60% a week earlier, according to trading data, helping to push two-year U.S. Treasury yields higher and the dollar stronger. The dollar index rose about 0.7% on the day, making dollar-denominated crude costlier for holders of other currencies and weighing on demand expectations.

“Monetary policy drives demand sentiment at the margin,” said Maria Alvarez, head of commodities strategy at Citadel Economics. “When rate-cut expectations are pushed out, growth-sensitive assets — including oil — feel the pinch as the dollar firms and financing costs for the real economy remain elevated.”

The pullback came even as supply-side factors continued to support prices. OPEC+ countries have maintained output restraint this year, and industry surveys point to limited spare capacity among non-OPEC producers. U.S. shale production growth has slowed from its peak pace as producers prioritize cash returns over rapid volume expansion, according to energy consultancy data, limiting the market’s ability to absorb demand shocks.

Inventory data added a mixed note. The Energy Information Administration’s latest weekly report showed U.S. crude stocks ticked up modestly by about 1.2 million barrels, a smaller-than-expected build that left analysts calling the market balanced but vulnerable to financial-market swings. Global demand forecasts remain steady; the International Energy Agency projects world oil demand growth of roughly 1.0 million barrels per day for 2025, largely driven by transportation and petrochemical use in developing markets.

Analysts said the episode underscores the growing interplay between macro policy and oil-market dynamics. “This isn’t a supply shock or a sudden demand collapse — it’s a macro repricing,” noted Ethan Park, senior oil analyst at Greenwich Markets. “The next big moves will depend on whether the Fed’s data flow keeps momentum or if cooler inflation readings reopen the path to easing.”

Looking ahead, traders will watch upcoming U.S. economic prints and Fed speakers for clues on policy timing, as well as OPEC+ meetings for any hints of further supply adjustments. For the longer term, structural trends — underinvestment in conventional capacity, capex discipline in shale, and the energy transition — continue to suggest that price swings will be volatile but bounded, with policy shifts and demand growth in China and emerging markets likely to determine the next directional move.