Oil prices declined on Wednesday following a report showing an increase in U.S. crude inventories. However, losses were tempered by concerns over potential supply disruptions in the Middle East and the threat of Hurricane Milton in the U.S.
Brent crude futures dropped 60 cents, or 0.8%, to settle at $76.58 per barrel. U.S. West Texas Intermediate (WTI) crude futures fell by 33 cents, or 0.5%, ending the day at $73.24 per barrel.
According to the Energy Information Administration (EIA), U.S. crude stockpiles surged by 5.8 million barrels last week, reaching 422.7 million barrels. This rise surpassed analysts’ expectations of a 2 million-barrel increase, as per a Reuters poll. Despite the higher-than-expected inventory build, the decline in oil prices was limited. This was in part due to a smaller increase than predicted by the American Petroleum Institute (API), a trade group, the day prior.
Bob Yawger, director of oil futures at Mizuho in New York, pointed out that larger-than-anticipated drawdowns in gasoline and distillates also helped mitigate the impact on oil prices.
“There’s a bullish element in the gasoline numbers, which may be linked to a rebound from the hurricane,” Yawger noted, referring to Hurricane Helene, which recently struck the U.S.
Hurricane Milton Raises Concerns
As the country braces for Hurricane Milton, the storm has already created a surge in gasoline demand in Florida. The hurricane, which is expected to make landfall soon, has caused tornadoes and heavy rainfall. Reports indicate that approximately a quarter of gas stations in Florida are running out of fuel, which has contributed to crude price support.
Middle East Tensions Linger
Markets remain uneasy about a possible Israeli attack on Iranian oil infrastructure, despite a significant 4% drop in oil prices on Tuesday. The decline came amid reports of a possible ceasefire between Hezbollah and Israel.
On Wednesday, U.S. President Joe Biden discussed Israel’s plans regarding oil-producer Iran with Israeli Prime Minister Benjamin Netanyahu. However, neither side provided further details about their conversation.
“We’re still on edge with the Middle East situation,” said John Kilduff, a partner at Again Capital in New York. “The speculation about a strike on Iran is adding roughly $5 to the price of a barrel.”
Despite ongoing geopolitical risks in the Middle East, economic troubles in China, the world’s largest crude importer, are dampening any potential upward price movement.
China’s Economic Concerns Affect Demand
China, grappling with slow economic growth, has added to global oil market concerns. While the country expressed confidence in meeting its full-year growth target, it stopped short of introducing stronger fiscal measures, leaving investors disappointed. Weaker-than-expected economic performance in China has stoked fears of reduced fuel demand, further weighing on crude prices.
“Even with heightened tensions in the Middle East, the oil market remains vulnerable to downward corrections due to the bearish macroeconomic narrative surrounding China,” said Harry Tchilinguirian, head of research at Onyx Capital Group.
The U.S. Energy Information Administration also revised its demand forecast for 2025, citing weakening economic activity in both China and North America. This outlook continues to press down on oil prices as investors remain cautious about global fuel demand.
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