Benchmark crude oil futures experienced their largest one-day drop in over two years following Israel’s recent limited retaliatory strikes on Iran. The attacks primarily targeted Iranian air defense systems and missile production sites, steering clear of energy facilities. This development eased concerns about potential disruptions to global oil supplies. Analysts noted that the absence of strikes on oil infrastructure or nuclear sites provides an opportunity for both nations to reduce tensions.
In a shift from earlier rhetoric, Iran’s Supreme Leader Ayatollah Ali Khamenei refrained from discussing immediate retaliation, signaling a possible de-escalation in hostilities.
Commodity analysts at Standard Chartered, however, caution that the situation is more complex. Although the recent Israeli missile strikes did not directly target energy infrastructure, Iran’s oil and gas facilities were not entirely spared from damage.
A report from the Guardian three days ago revealed that Israel conducted precision air and drone strikes aimed primarily at air defense systems protecting key oil and gas facilities, as well as military sites linked to Iran’s nuclear program and ballistic missile production.
Targeted locations included the Abadan oil refinery, the Bandar Imam Khomeini petrochemical complex, the Tange Bijar gas field, and the southern Bandar port. Israeli media reported approximately 20 strikes in total. Standard Chartered pointed out that the damage to Iran’s air defenses has made its energy infrastructure more vulnerable to future attacks, a risk that the market may be underestimating.
Despite this uncertainty, oil prices have partially rebounded from Monday’s significant losses. Brent crude for December delivery rose 2.1% to $72.50 per barrel, while the WTI crude contract increased by 2.0%, trading at $68.62 per barrel. This price recovery follows a report from the U.S. Energy Information Administration (EIA), which indicated inventory declines in gasoline and middle distillates for the week ending October 25.
Gasoline stocks decreased by 2.7 million barrels, with production averaging 9.7 million barrels per day, compared to an inventory increase of 900,000 barrels the previous week, when production averaged 10 million barrels per day. In middle distillates, the EIA estimated a decline of 1 million barrels, with production averaging 4.9 million barrels per day, down from an average of 5 million barrels the previous week.
Last week, Standard Chartered reported that global oil demand reached an all-time high of 103.79 million barrels per day (mb/d) in August. This figure was approximately 450,000 barrels per day higher than their pre-JODI data release forecast. August marked the third consecutive month of record-high demand, with growth of 1.32 mb/d. While this growth is lower than in previous post-pandemic Augusts, it remains robust. The largest increases came from South Korea (219 kb/d), Italy (185 kb/d), Saudi Arabia (117 kb/d), Turkey (99 kb/d), and Spain (88 kb/d). As a result, Standard Chartered has raised its 2024 global demand growth estimate to 1.45 mb/d, reflecting the stronger-than-expected growth in August.
Europe’s Gas Prices Surge
In another positive development, European gas prices have experienced an unexpected rally as markets remain cautious due to recent supply outages in Norway and the U.S.
According to data from Gas Infrastructure Europe (GIE), EU gas inventories stood at 111.964 billion cubic meters (bcm) on October 27, reflecting a week-over-week increase of just 2 million cubic meters. Standard Chartered noted that the trend over the past week has shown weekday withdrawals and weekend injections, indicating that the seasonal peak in inventories may be imminent or has already passed.
The potential for an early start to inventory withdrawals, coupled with ongoing security concerns in the Middle East and fluctuations in Russian gas flows, has led to a sharp rise in European gas prices. The front-month TTF price reached a 10-month high of EUR 43.68 per megawatt-hour (MWh) on October 26, settling at EUR 42.519/MWh on October 28, marking a week-over-week increase of EUR 2.495/MWh (6.2%). Year-to-date, both EU and UK gas prices have risen over 30%, closely trailing the year-to-date performance of gold.
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