Crude oil prices edged higher on Wednesday, reflecting heightened supply concerns amid rising tensions in the Middle East. By 08:45 ET (12.45 GMT), U.S. crude futures traded 0.2% higher at $80.90 a barrel, while the Brent contract climbed 0.3% to $85.55 a barrel. Both crude contracts had gained around 1% on Tuesday, following Israeli Foreign Minister Israel Katz's warning of a potential "all-out war" with Lebanon's Hezbollah, coinciding with a relative calming of the conflict with Hamas in Gaza.
Key Takeaways
Middle East Tensions Impact Oil Prices: Elevated tensions between Israel and Lebanon’s Hezbollah, along with a Ukrainian drone strike on a Russian oil terminal, are driving crude prices higher.
Unexpected Rise in US Crude Inventories: U.S. crude inventories saw an unexpected increase, overshadowing the geopolitical concerns and influencing market sentiment.
Future Market Outlook: UBS predicts Brent prices will rebound, supported by OPEC+ cuts and seasonal demand increases, despite potential negative impacts from slower GDP growth and higher prices.
Commodities Market Update: Oil Prices React to Middle
East and US Inventory Data
Middle East Tensions Drive Oil Prices Higher
Crude oil prices edged higher on Wednesday, reflecting heightened supply concerns amid rising tensions in the Middle East. By 08:45 ET (12.45 GMT), U.S. crude futures traded 0.2% higher at $80.90 a barrel, while the Brent contract climbed 0.3% to $85.55 a barrel. Both crude contracts had gained around 1% on Tuesday, following Israeli Foreign Minister Israel Katz's warning of a potential "all-out war" with Lebanon's Hezbollah, coinciding with a relative calming of the conflict with Hamas in Gaza.
The U.S., Israel's principal backer, is striving to prevent a broader conflict between Israel and the Iran-backed group, as an escalating war threatens to disrupt supplies from this critical oil-producing region. Additionally, reports of a Ukrainian drone strike causing a fire at an oil terminal in a major Russian port have raised concerns about potential disruptions to crude supplies from Russia.
US Crude Inventories and Market Reaction
The geopolitical tensions overshadowed data indicating an unexpected rise in U.S. crude inventories. U.S. crude inventories fell by around 2.3 million barrels for the week ended June 14, according to data from the American Petroleum Institute, compared with a draw of 2.4 million barrels the previous week. This increase in domestic crude stocks was unexpected, as many had anticipated a decrease in inventories due to the summer driving season boosting demand.
"The surprise crude build means the report was moderately bearish," said analysts at ING, in a note.
Future Outlook: UBS and OPEC+ Influence
UBS expects Brent to rebound to the mid to high-$80s, supported by the OPEC+ cuts extension and the seasonal rebound in demand. The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, announced plans earlier this month to gradually phase out its voluntary cuts potentially as early as October 2024.
Brent is then set to move to $80/bbl next year, UBS added, as OPEC+ starts to bring back production gradually from the second quarter.
“We do expect a negative impact on oil demand from slower GDP growth and higher prices but continue to expect demand to grow until the late 2020s,” UBS said.
Brent Oil Futures Stabilize Amid Mixed Signals
Brent oil futures were little changed in Asia on Thursday, hovering slightly below seven-week highs, as the market weighed geopolitical developments in the Middle East while waiting for the upcoming U.S. inventory data. August Brent rose 6 cents to $85.13 per barrel by 0315 GMT. Meanwhile, U.S. West Texas Intermediate futures (WTI) for July, which expires on Thursday, dipped 15 cents to $81.42 per barrel.
There was no WTI settlement on Wednesday due to a U.S. holiday, which kept trading largely subdued. The more active August contract fell 17 cents to $80.54 per barrel.
Geopolitical Concerns vs. Inventory Data
Brent crude futures edged up in early trade on Thursday as the market digested news of Israeli tanks advancing into Gaza. Israeli troops, backed by tanks, warplanes, and drones, moved farther into the city of Rafah, killing eight people, residents and Palestinian medics said.
"Markets anticipate an escalation in the Gaza crisis to dent the oil supplies from the key producing region," said Priyanka Sachdeva, senior market analyst at Phillip Nova. However, the concerns over an inventory build appear to be overshadowing fears of escalating geopolitical stress for now, Sachdeva said. WTI crude slipped ahead of the U.S. government's oil inventories report, which was delayed by a day due to the national holiday.
The Energy Information Administration is due to release last week's oil stocks data at 11 a.m. EDT (1500 GMT) on Thursday. An industry report released on Tuesday showed U.S. crude stocks rose by 2.264 million barrels in the week ended June 14, market sources said, citing American Petroleum Institute figures, while gasoline inventories fell. "EIA's weekly oil inventory report will be scoured for any signs of weak demand," said ANZ Research analysts on Thursday.
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