Oil prices closed slightly higher on Wednesday despite a surprise increase in U.S. gasoline supplies. Investors remained concerned that escalating tensions in Gaza could disrupt crude oil flows from the Middle East.
Brent crude futures edged up by 24 cents to settle at $85.25 per barrel, a 0.3% gain, while U.S. West Texas Intermediate crude futures settled 7 cents higher at $80.90 per barrel.
Tensions between Israel and Lebanon’s Hezbollah have heightened in recent weeks, raising fears of a broader conflict involving regional powers like Iran, a major oil producer.
“The market’s geopolitical risk premium is rising due to the potential for conflict between Israel and Lebanon, which could draw in Iran,” said Andrew Lipow, from Lipow Oil Associates in Houston.
Turkish President Tayyip Erdogan expressed solidarity with Lebanon and called for support from neighboring countries.
Meanwhile, attacks by Houthi rebels on shipping in the Red Sea supported oil prices. The group claimed responsibility for targeting a ship in Israel’s Haifa port using drones in cooperation with the Islamic Resistance in Iraq.
Earlier in the day, oil prices had dipped following a report from the U.S. Energy Information Administration (EIA) showing a 3.6 million barrel increase in U.S. crude oil stocks last week, contrary to expectations of a decrease.
“U.S. inventories are rising while stocks in other regions are falling,” noted UBS analyst Giovanni Staunovo. “The market dynamics show varying trends.”
Staunovo added that despite the U.S. data, oil inventories in Japan and Europe had decreased last week, indicating a tightening market outside the U.S.
UBS anticipates oil prices will climb in the coming weeks despite concerns over weak U.S. gasoline demand during the peak summer driving season. U.S. gasoline consumption, which represents about 10% of global oil use, declined by 3.6% year-on-year to approximately 8.9 million barrels per day last week. Gasoline stocks rose unexpectedly even as refiners reduced output.
“These figures may disappoint gasoline market optimists,” Lipow commented. “Unless there’s a major disruption like a hurricane, we have sufficient supplies for the upcoming summer driving season with July 4th approaching.”