Crude oil prices are set for a modest gain this week as the war premium that emerged in the aftermath of last weekend’s attacks of Hamas on Israel appeared to cool down as inventories built and nations made a clear attempt to contain the violence.
Brent crude is set to end the week with a gain of 2.3%, Reuters estimated, while West Texas Intermediate is about to book a 0.8% gain.
One of the reasons for the short-lived rally was the apparent determination to contain the latest flare-up of violence in the Middle East and prevent any further escalation. President Biden has been unequivocal in his support for Israel and U.S. forces have been put on alert as a clear deterrent to other nations involving themselves in the conflict. At the same time, he has emphasized the importance that Israel and Netanyahu follow the rules of war.
Another factor that helped keep oil prices under control was the massive oil inventory build reported this week by both the American Petroleum Institute and the Energy Information Administration. The API saw the build at 13 million barrels while the EIA estimated it at 10.2 million barrels.
Separately, the International Energy Agency reported that Russian crude oil and fuel exports had climbed higher in September despite a deal with Riyadh to reduce oil exports by 300,000 bpd. According to the IEA, crude oil and fuel exports from Russia were up by 460,000 bpd between August and September. Russia’s Deputy Prime Minister has since claimed that the country’s pledge to reduce oil exports by 300,000 bpd includes oil products.
Meanwhile, all eyes are on Iran after the U.S. said it would investigate whether Tehran was involved in the planning of the Hamas attacks and canceled the transfer of $6 billion to Iran as part of a prisoner exchange deal. Iran has denied any involvement.
The U.S. also imposed the first sanctions on two tanker owners that have been transporting Russian crude oil abroad, claiming the oil they transported had been sold at a price higher than the cap of $60 per barrel imposed on Russian crude by the G7 and the European Union.
This added to oil’s upward potential, as did OPEC’s latest monthly report that saw oil demand continue to be resilient. The effect was reinforced by the IEA’s monthly report, which acknowledged the supply situation with oil was a tight one.
While oil markets remain tight and geopolitical risk will keep traders on edge for the foreseeable future, demand concerns and growing inventories continue to weigh on oil prices amid economic uncertainty.