Key points:

  • A significant increase in U.S. crude oil and petroleum product inventories put pressure on prices.
  • Lower rates could stimulate economic activity and, consequently, demand for oil.
  • Escalating tensions in the Middle East provide minor support to oil prices.

Despite rising geopolitical tensions in the Middle East and the potentially positive effect of the anticipated U.S. interest rate cut, Brent and WTI crude oil prices fell on Wednesday. The decline was triggered by industry report data indicating an increase in U.S. crude oil and petroleum product inventories.

November Brent crude futures dropped by 54 cents, or 0.7%, closing at $73.16 per barrel. October WTI crude futures fell by 46 cents, or 0.7%, to $70.73 per barrel.

Oil shows weak recovery

The oil market reacted to data from the American Petroleum Institute, released on Tuesday, by declining. According to the report, for the week ending September 13, U.S. crude oil inventories increased by 1.96 million barrels. The rise in gasoline and distillate stocks added to the negative pressure on prices. Ole Hansen from Saxo Bank noted that the increase in U.S. oil and petroleum product inventories offset the impact of the ongoing tensions in the Middle East.

Brent crude, which hit its lowest level since December 2021 on September 10, dipping below $70 per barrel, is attempting to recover. However, weak global refining margins, indicating reduced demand, are limiting price growth and creating resistance around $75 per barrel.

Middle East tensions provide minor support

Uncertainty about the scale of the Federal Reserve’s interest rate cut today is prompting investors to be cautious, says UBS analyst Giovanni Staunovo.

The situation in the Middle East, which has escalated due to recent events, is providing some support to oil prices amid fears of potential supply disruptions. Notably, prices rose due to the risk that increased violence in the Middle East could disrupt supplies after Israel reportedly attacked the Hezbollah militia using explosive-laden pagers in Lebanon. Hezbollah has vowed to retaliate against Israel.

However, the upcoming release of U.S. Energy Information Administration data on crude oil and petroleum product inventories could alter market dynamics. Analysts expect a slight reduction in crude oil inventories, but an increase in distillate and gasoline stocks.