Oil prices diverged, or moved in opposite directions, in the global commodities market after stalled ceasefire talks between Israel and Hamas, while statistics revealed that US petroleum stockpiles declined dramatically.
The commodities market dynamics have produced an imbalance between supply and demand, making analysts’ predictions concerning energy costs a Herculean undertaking. The conflict in the Middle East has had a detrimental impact on crude oil production, but weak demand expectations in China continue to be a negative for buyers.
Oil prices were neutral in a tumultuous trading day on Wednesday, as data showed an increase in US crude oil inventories. This comes on the heels of increased uncertainty about the US Federal Reserve’s (Fed) rate.
ICE Brent crude rose 0.1% to $77.26 per barrel after the previous fall. US benchmark West Texas Intermediate (WTI) fell 0.04% to $73.14 per barrel after closing at $73.17 in the prior session.
According to estimates, there is a higher likelihood that the Fed will implement a 25 basis point rate cut in September. However, uncertainty persists regarding the monetary policy actions that may be taken through the end of the year.
Moreover, ongoing geopolitical conflicts in the Middle East continue to influence upward price movements by fueling market players’ supply fears. A news report stated that three Palestinians were injured on Tuesday in separate incidents involving Israeli army gunfire and attacks by illegal settlers across the occupied West Bank.
For months, the US, Qatar, and Egypt have been trying to reach an agreement between Israel and Hamas to ensure a hostage swap deal and a cease-fire and allow humanitarian aid to enter Gaza.
However, mediation efforts have stalled due to Prime Minister Benjamin Netanyahu’s refusal to meet Hamas’ demands to end the war. An informed Israeli source told public broadcaster KAN that Netanyahu continues to put obstacles before prisoner swap deals with Hamas.
Yesterday, oil closed lower for a fourth consecutive day. ICE Brent settled almost 1.5% lower yesterday, leaving it to close just above US$76/bbl—the weakest settlement since January, according to ING commodities strategists Warren Patterson and Ewa Manthey.
Analysts said this weakness comes despite cease-fire talks between Israel and Hamas appearing to have stalled, while the EIA also published a fairly constructive weekly US inventory report. Still, demand worries from top crude oil consumers continue to be the main driver for the market at the moment, analysts said in separate notes.
According to ING, the downward pressure on prices makes it increasingly likely that OPEC+ will have to scrap their plans for gradually increasing supply starting in October. Failing to do so will likely put further pressure on prices, ING Patterson and Manthey said in their note on Wednesday.
The EIA’s weekly report was fairly bullish. US commercial crude oil inventories fell by 4.65 million barrels over the last week, more than the 2.2 million barrel decline the market was expecting.
This leaves crude inventories at 426 million barrels, the lowest since January, analysts said. The larger-than-expected draw was driven by stronger crude export volumes, which increased 289,000 b/d week on week, and also by an increase in refinery run rates, with crude inputs growing 222,000 b/d over the week.
US refined products also saw inventory declines. Gasoline and distillate stocks fell by 1.61 million barrels and 3.31 million barrels, respectively.
For gasoline, the draw would have been helped by stronger implied demand, which grew 148,000 b/d, while for distillates, a 313,000 b/d increase in export volumes contributed to the larger stock decline. In fact, distillate exports hit a record level of 1.85 mb/d over the week.
