Oil prices took a hit on Wednesday as U.S. crude inventories swelled more than expected, raising concerns about a potential oversupply despite ongoing fears of supply disruptions from the Middle East. Brent crude futures fell by $1.40, or 1.8%, to $74.64 per barrel, while U.S. West Texas Intermediate (WTI) crude futures dropped $1.40, or 2%, to $70.34. Despite the midweek decline, prices remained up by about 2% for the week, buoyed by ongoing conflict in the Middle East that has kept traders cautious.
The latest data, released by the American Petroleum Institute (API), revealed that U.S. crude stockpiles rose by 1.64 million barrels last week. This figure was far higher than the 300,000-barrel increase expected by analysts polled by Reuters. Official government oil inventory data was expected later on Wednesday, adding to the market's focus on the rising inventories.
While the unexpected build-up of U.S. crude stockpiles weighed on prices, the potential for supply disruptions in the Middle East continues to exert upward pressure. ING analysts highlighted that traders are closely watching Israel's response to a missile strike from Iran earlier this month. The geopolitical uncertainty has kept market participants on edge, contributing to price volatility.
"The market continues to wait for Israel's response to Iran's missile attack," ING analysts said on Wednesday. The situation remains tense as U.S. Secretary of State Antony Blinken urged for a ceasefire between Israel and militant groups Hamas and Hezbollah. However, heavy Israeli airstrikes on Lebanon's historic port city of Tyre indicated that a pause in hostilities was unlikely in the near term.
In addition to these concerns, Israel confirmed the killing of Hashem Safieddine, a key Hezbollah leader, intensifying the region's political and military dynamics. Traders fear the conflict could drag on, further disrupting oil supplies from a region responsible for about one-third of global output.
Adding to the uncertainty is China's economic outlook. China, the world's top oil importer, has rolled out a series of stimulus measures aimed at boosting its economy and, by extension, its energy demand. However, analysts are questioning the effectiveness of these measures. "There are doubts about whether China's stimulus will effectively boost energy demand," said one market strategist, reflecting broader market sentiment.
The sharp swings in oil prices over the past few weeks have raised concerns about increased volatility in the market. October saw prices fluctuate significantly as traders grappled with the dual forces of potential oversupply and risks to supply from geopolitical tensions. While concerns over Iran's oil supply had eased in recent days, market analysts are now shifting their focus to oversupply risks in 2025.
"As concerns about Iran oil supply have eased, market focus is shifting back to the risks of oversupply in 2025," wrote Goldman Sachs analysts in a note. The analysts pointed out that downside price risks, such as high spare capacity and the potential imposition of broader trade tariffs, could outweigh any price upside stemming from geopolitical tensions.
