In the ever-evolving narrative of the global energy markets, oil prices once again took an upward turn on Wednesday, primarily influenced by the mounting geopolitical tensions in the Middle East. The upward thrust in oil prices comes after suffering losses over two consecutive days. The stalling of ceasefire talks in Gaza propelled the uncertainty regarding the stability of energy supplies from the oil-rich Middle East, effectively eclipsing the impact made by a substantial increase in U.S. crude inventories.
By 0650 GMT, Brent crude futures had seen an increment of 25 cents, now priced at $89.67 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures lifted by 24 cents, reaching $85.47. While the numbers indicate a positive trajectory, it remains apparent that both benchmarks are still trailing by approximately 1.7% from the previous week’s close. The anxiety looming over the Middle East, particularly due to the potential protraction of Israel’s engagement in Gaza which could possibly invite more regional players into the fray, does not bode well for the stability of oil exports.
Tony Sycamore, an astute market analyst from IG in Singapore, opined on the situation, “Some of the heat has come out of the rally in crude oil in the early part of this week on hopes of a ceasefire in Gaza and higher US inventories.” But these events have yet to quench the fires of uncertainty that keep prices volatile.
On Tuesday, Hamas, the Palestinian militant faction, expressed that the Israeli truce terms for Gaza failed to meet their demands. Hamas, however, pledged further scrutiny of the proposal and stated that their response would be relayed through intermediaries. An amplified duration of the conflict poses a significant risk to the stability of the region at large, particularly with Iran — a vital ally to Hamas and OPEC’s third-largest oil producer — potentially finding itself embroiled in the discord.
Meanwhile, stateside developments also garnered attention as market sources, quoting figures from the American Petroleum Institute, revealed that last week saw U.S. crude inventories swell by over three million barrels, outpacing the analyst forecast of a 2.4 million barrel increase. The official inventory report from the U.S. government was anticipated later in the day.
Despite these figures, risks are still skewed upward, according to IG’s Sycamore. He asserts that a range of factors could reignite the upward price trend, including cooler-than-anticipated U.S. CPI figures, aggressive actions such as Ukrainian drone strikes against Russian oil infrastructure, or responses from Iran following Israel’s targeted killing of two Iranian generals in Syria.
In a separate development, the U.S. government adjusted its forecast for domestic crude oil production. It now expects an increment of 280,000 barrels per day (bpd), bringing the 2024 projection to 13.21 million bpd. This is an uptick of 20,000 bpd from earlier estimations by the U.S. Energy Information Administration (EIA). Furthermore, the EIA projects an average Brent crude price of $88.55 per barrel for 2024, which is a slight increase from the previous forecast.
The backdrop of Tuesday’s price movements was also dominated by the Israel-Hamas ceasefire talks in Cairo, which resulted in over 1% falls for both Brent and WTI. The geopolitical tension continued to escalate when the Iranian Revolutionary Guard’s navy commander hinted at the potential closure of the critical Strait of Hormuz should it be deemed necessary—a threat, since nearly a fifth of global oil consumption traverses this narrow passageway daily.
In an act of solidarity with the ongoing conflict, Turkey declared that it would limit exports of various products, jet fuel included, to Israel until a ceasefire was realized. In retaliation, Israel announced prospective countermeasures. These developments, albeit individually significant, coalesce into a broader narrative that paints a complex picture of the delicate equilibrium that governs oil prices in our intertwined global economy.
