U.S. oil prices retreat for a third straight session, nearly erasing the Israel-Gaza fear premium

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U.S. oil futures finished lower Thursday for a third consecutive session, erasing the bulk of the rise seen earlier this week from the regional supply risks brought on by the Hamas attack on Israel.

Prices for U.S. benchmark crude declined following a U.S. government report that showed a more than 10 million-barrel weekly rise in domestic crude inventories, and an increase in U.S. oil production to its highest on record.

Price action

  • West Texas Intermediate crude for November delivery


    fell 58 cents, or 0.7%, to settle at $82.91 a barrel on the New York Mercantile Exchange. Prices had settled at $82.79 on Friday, ahead of the weekend’s Hamas attack on Israel.

  • December Brent crude
    the global benchmark, edged up by 18 cents, or 0.2%, to $86 a barrel on ICE Futures Europe after trading as low as $85.18. Brent ended Friday had at $84.58 a barrel.

  • November gasoline
    shed 2% to $2.17 a gallon, while November heating oil
    added nearly 1.6% to $3.04 a gallon.

  • Natural gas for November delivery
    settled at $3.34 per million British thermal units, down 1%.

Supply data

The Energy Information Administration on Thursday reported that U.S. commercial crude inventories rose by 10.2 million barrels for the week ended Oct. 6.

On average, analysts polled by S&P Global Commodity Insights expected the report to show an increase of 200,000 barrels in last week’s crude supplies. The American Petroleum Institute late Wednesday reported a 12.9 million barrel increase, according to a source citing the data.

The EIA report, which was released a day later than usual due to Monday’s holiday, also revealed supply declines of 1.3 million barrels for gasoline and 1.8 million barrels for distillates. Analysts forecast inventory declines of 1.1 million barrels for gasoline and 1.8 million barrels for distillates.

“Record production, lower exports and the peak of autumn refinery maintenance have colluded to result in a whopper of a build to crude inventories,” said Matt Smith, lead oil analyst, Americas, at Kpler. “Draws to the products have been inevitable given stymied refining activity.” 

Crude stocks at the Cushing, Okla., Nymex delivery hub fell by 300,000 barrels for the week, the EIA said, while domestic production climbed by 300,000 barrels to 13.2 million barrels a day.

U.S. crude production is at a new all-time high, said Troy Vincent, senior market analyst at DTN. “U.S. shale production continues to prove those who have written its early obituary wrong, time and time again.”

“U.S. shale production continues to prove those who have written its early obituary wrong, time and time again.”

— Troy Vincent, DTN

In a separate report also released Thursday, the EIA Thursday reported that U.S. natural-gas supplies in storage rose by 84 billion cubic feet for the week ended Oct. 6. On average, analysts surveyed by S&P Global Commodity Insights forecast an increase of 91 billion cubic feet.

Also see: EIA expects a decline in this year’s U.S. natural-gas heating bills

Market drivers

The latest reporting on the news in the Middle East indicates Iran was aware that Hamas was planning an attack, but according to The Wall Street Journal, didn’t know the timing or scope of it. The report, citing U.S. intelligence agencies, was softer than the same newspaper’s assessment that Iran helped to plot the attack over several weeks.

Read: Israel-Gaza war scenarios: what might lift oil prices to $95, $100, and $115 a barrel

“A conflict in the Middle East will fuel a fear bid in oil markets as long as the world runs on refined products so until we see a ceasefire or truce called, which hopefully comes sooner than later, the upward pressure the conflict is having on oil prices will continue,” Tyler Richey, co-editor of Sevens Report Research, told MarketWatch, adding that many traders are still calling for $100 oil.

But “if geopolitical risks ease and recession concerns resurface as a major market influence, a drop in WTI towards the mid-to-upper $70s should not come as a surprise,” he said.

Elsewhere, the Paris-based International Energy Agency on Thursday said that it now expects oil demand to grow by 2.3 million barrels a day this year, a hike of 100,000 barrels a day from last month’s report — translating into total demand averaging 101.9 million barrels a day, a new record.

Separately, in a monthly report, the Organization of the Petroleum Exporting Countries left its forecast for the global oil market largely unchanged Thursday, forecasting a rise in oil demand of 2.4 million barrels a day this year and a further increase of 2.2 million barrels a day in 2024.

Meanwhile, the Group of Seven and Australia announced Thursday the latest actions taken to enforce price caps on seaborne Russian oil that had been established in September of 2022. As part of that, they said the U.S. would impose sanctions on two entities that own vessels that used Price Cap Coalition service providers and that carried Russia crude oil above the price cap limit.

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