Jamie Spencer
Oil prices dropped on Wednesday following a report that U.S. crude inventories rose more than anticipated. However, despite the fall, oil futures remain up around 2% for the week, as traders continue to weigh the impact of the ongoing conflict in the Middle East on global oil supply.
U.S. Crude Inventories Rise Beyond Expectations
Brent crude futures fell by $1.26, or 1.7%, to $74.78 per barrel by 11:08 a.m. (1508 GMT), while U.S. West Texas Intermediate (WTI) crude futures dropped by $1.20, or 1.7%, to $70.54 per barrel. The drop followed data from the U.S. Energy Information Administration (EIA), which reported that U.S. crude inventories increased by 5.5 million barrels, reaching 426 million barrels for the week ending on October 18. This build in inventory far exceeded analysts’ expectations of a 270,000-barrel rise, as forecasted by a Reuters poll.
Gasoline inventories also saw an increase, while distillate stockpiles, which include diesel and heating oil, fell. The rise in crude stocks came as refining activity in the U.S. began to recover from a seasonal slowdown. “As we continue to gradually exit from peak refinery maintenance at the start of the month, refinery runs have climbed back above 16 million barrels per day after bottoming out two weeks ago,” said Matt Smith, lead oil analyst at Kpler.
Middle East Tensions Keep Markets on Edge
Despite the increase in U.S. inventories, oil prices have remained buoyed this week due to ongoing concerns about potential supply disruptions stemming from the conflict in the Middle East. Traders are closely monitoring the situation in Israel, particularly as tensions with Iran continue to escalate. ING analysts noted that the market is still waiting for Israel’s response to Iran’s missile attack earlier this month, which could further influence oil prices.
The strength in oil prices earlier this week was partially attributed to the lack of a significant outcome from U.S. Secretary of State Antony Blinken’s recent diplomatic visit to Israel. Blinken has been pushing for a ceasefire between Israel and militant groups Hamas and Hezbollah, but heavy Israeli airstrikes on Lebanon’s port city of Tyre indicate that a halt to the fighting is unlikely in the near term.
Uncertainty in the Market
Oil market participants are now pricing in a prolonged conflict in the Middle East, with IG market strategist Yeap Jun Rong suggesting that “a ceasefire deal potentially seeing some gridlock” is keeping traders cautious. Despite the immediate drop in prices following the U.S. inventory report, the ongoing geopolitical situation is expected to keep oil markets volatile in the coming weeks.
While rising U.S. crude inventories put downward pressure on oil prices, concerns over potential supply disruptions from the Middle East are keeping traders on edge. As the situation unfolds, oil prices may fluctuate further depending on developments in both U.S. crude stocks and the ongoing conflict in the region.
