U.S. crude oil futures saw a significant rebound on Wednesday, driven by escalating tensions in the Middle East and a recovery in the stock market. The West Texas Intermediate (WTI) September contract rose by $1.61, or 2.24%, closing at $74.81 per barrel. Similarly, Brent crude for October delivery increased by $1.64, or 2.14%, to settle at $78.12 per barrel. This recovery comes after both benchmarks experienced multi-month lows earlier in the week due to recession fears and weak demand indicators.
The resurgence in oil prices coincided with a stock market recovery. On Tuesday, the S&P 500 closed 1% higher, and the Dow Jones Industrial Average gained nearly 300 points, breaking a three-day losing streak. These gains came after the two indices recorded their worst day since 2022 on Monday, as fears of a potential recession in the United States swept through the market.
The oil market had been under pressure due to concerns about a potential U.S. recession, exacerbated by weak jobs data. On Monday, Brent futures dropped to their lowest levels since early January, while WTI futures hit their lowest since February. However, the situation took a turn as geopolitical tensions in the Middle East provided a new floor for oil prices.
"Brent should maintain a floor of $75 per barrel and will find support as the risk of a recession is limited and oil demand is resilient in the West and solid in India," noted a Goldman Sachs report. The report highlighted that ongoing production cuts by OPEC+ and escalating tensions in the Middle East are bolstering oil prices.
The geopolitical tensions are largely centered around the potential for conflict escalation in the Middle East. Israel is preparing for a possible attack from Iran following the assassination of Hamas leader Ismail Haniyeh in Tehran. U.S. officials have been in constant communication with allies in the region, with Secretary of State Antony Blinken emphasizing a "clear consensus" against escalating the situation.
"Any escalation of the conflict in the Middle East could see a greater risk of disruptions to supplies from the region," remarked ANZ analyst Daniel Hynes. The prospect of such disruptions has added to the upward pressure on oil prices.
Despite the upward momentum, oil prices did face some bearish pressure earlier in Wednesday's trading session. Data from the American Petroleum Institute showed an unexpected increase in U.S. crude oil, gasoline, and distillate inventories, which initially caused prices to slip. The U.S. Energy Information Administration was set to release its weekly inventory data later on Wednesday, which could further influence market dynamics.
Moreover, Chinese trade data showed that daily crude oil imports in July fell to their lowest level since September 2022, adding to concerns about weak demand. However, the overall market sentiment remained bullish due to the geopolitical factors at play.
West Texas Intermediate September contract closed at $74.81 per barrel, marking a 2.24% increase. Brent October contract settled at $78.12 per barrel, up 2.14%. The RBOB Gasoline September contract rose by 2 cents to $2.35 per gallon, reflecting a 0.96% increase. Meanwhile, the Natural Gas September contract climbed by 7 cents to $2.08 per thousand cubic feet, a 3.68% rise, though it remains down about 17% year-to-date.
