Brent crude oil prices remained steady on Thursday, holding just below seven-week highs as the market closely monitors escalating conflict in the Middle East and anticipates the latest U.S. inventory data. By 11:45 GMT, Brent futures for August delivery had risen 28 cents, or 0.3%, to $85.35 a barrel, while U.S. West Texas Intermediate (WTI) futures for July, expiring on Thursday, edged up 13 cents, or 0.2%, to $81.70 a barrel.
The WTI market experienced subdued trading due to a public holiday in the U.S. on Wednesday, which also delayed the release of the Energy Information Administration (EIA) inventory data to Thursday. The more active WTI August contract gained 7 cents to reach $80.78.
Analysts expect oil prices to remain supported at current levels, driven by growing geopolitical risks in the Middle East. "Oil prices are likely to remain supported around current levels because of a growing geopolitical risk premium driven by conflict in the Middle East," said ActivTrades analyst Ricardo Evangelista. Israeli forces have intensified their military operations in the Gaza Strip, raising fears of broader supply disruptions.
However, market attention is also focused on U.S. inventory data, with analysts predicting a build in crude stocks. "Expectations of an inventories build appears to be overshadowing fears of escalating geopolitical stress for now," said Priyanka Sachdeva, senior market analyst at Phillip Nova. The EIA's inventory report, delayed by the Juneteenth holiday, is eagerly awaited by investors.
Preliminary data from the American Petroleum Institute (API) earlier this week indicated a rise in U.S. crude stocks by 2.264 million barrels for the week ending June 14, while gasoline inventories reportedly declined. This seasonal uptick in oil demand, coupled with refinery runs and ongoing weather risks, suggests that oil balances may tighten and inventories could start to draw down during the summer months, according to J.P. Morgan commodities analysts.
Additionally, a rise in fuel prices has bolstered refining margins. On Wednesday, the ICE gasoil futures premium to Brent crude surged to $20.63 a barrel, marking a two-month high. "Firmer fuel refining margins provide a healthy dose of encouragement for those who have been expecting improvements on the demand side," noted PVM analyst Tamas Varga.
Despite geopolitical tensions and supply concerns, oil prices have also been influenced by broader economic factors. Investors are digesting the Bank of England's recent decision to maintain its main interest rate at a 16-year high of 5.25%, ahead of the upcoming national election in the UK. Higher interest rates can increase borrowing costs, potentially slowing economic activity and reducing oil demand.
Oil prices have mirrored trends in other asset classes, including equities, but signs of a stronger market have emerged in the futures curve. The recent uptick in crude prices has driven implied volatility for Brent to a six-year low, indicating a more stable market outlook.
The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have extended supply cuts, contributing to Brent's steady performance. OPEC+ has indicated that any future decisions to increase output will depend on market conditions. This cautious approach aims to balance supply with fluctuating demand, particularly as Asian refineries resume operations after maintenance.
Arne Lohmann Rasmussen, Head of Research at A/S Global Risk Management, highlighted the market's anticipation of the U.S. inventory data. "Today we are waiting for the inventory data. After the API data, the market is prepared for a build, so I guess there is room for a positive surprise here," Rasmussen commented.
As the market awaits the EIA's detailed inventory report, oil prices are expected to remain sensitive to geopolitical developments and economic indicators. The dual impact of Middle Eastern tensions and U.S. inventory trends will likely shape the near-term trajectory of crude oil prices, keeping investors on alert for any significant shifts in the global oil landscape.
