Oil Prices Rally over Hurricane Milton, Middle East Risks
Oil prices rally as Hurricane Milton increased supply risks amidst existing uncertainties from Middle East tensions. Brent crude climbed to US$77.28 per barrel and West Texas Intermediate crude surged to US$73.98 despite Chinese weak demand outlook.
Yesterday, Brent slumped to $77 per barrel, down by about 5% for the day along with other commodities as demand concerns from China weighed on the market sentiment, ING said in a note.
Analysts said a bearish inventory report from the American Petroleum Institute (API) put further pressure on oil prices in the short term. The prices have stabilised this morning as focus shifts to supply risks in the US due to Hurricane Milton.
Recent reports suggest that Pemex shut oil platforms and crude-exporting terminals in the Gulf of Mexico due to the hurricane. It was reported that some of the offshore oil platforms were also shut due to the rising hurricane threat.
The API reported that US crude oil inventories rose significantly by 10.9 million barrels last week, higher than the market expectation for a build of just 1.3m barrels.
Crude stockpiles at Cushing increased by 1.4 million barrels. Meanwhile, product inventories fell over the reporting week, with gasoline stocks falling by 0.6m barrels while distillate inventories declined by 2.6m barrels, in line with the average market expectation.
The EIA’s latest Short-Term Energy Outlook saw downward revisions in US crude oil production forecasts. The agency expects US crude oil production growth to slow down to 290k b/d year-on-year compared to its earlier estimates of 320k b/d.
The administration now estimates production at 13.22 million barrels per day for 2024. For 2025, the oil output projections were lowered from 13.67 m b/d to 13.54m b/d.
ING analysts said these revisions come as the number of oil rigs operating in the US has been declining for some time now. For US natural gas output, the EIA forecast that dry gas production could fall by 0.3bcf/d this year compared to earlier estimates of 0.4bcf/d of fall. Growth for 2025 has also been trimmed from 1.4bcf/d last month to 1.1bcf/d currently.
Ongoing conflicts in the Middle East, where most of the world’s hydrocarbon resources are located, support price increase. The fight between the Israeli army and Hezbollah has been ongoing since Oct. 2023.
The Lebanese Hezbollah group announced Wednesday it had repelled two attempted incursions by Israeli forces into southern Lebanon with artillery and rocket fire, resulting in injuries among Israeli soldiers. A second statement from the group detailed a similar confrontation in the town of Blida.
Despite warnings from international observers about the growing risk of a regional war, Israel expanded the conflict on Oct. 1, initiating a ground invasion into southern Lebanon as it maintains its devastating offensive against Hezbollah and Gaza.
Oil prices fell by more than 4% on Tuesday following news flow that Hezbollah wanted a cease-fire with Israel, though some question the timing of the call for a cease-fire.
The US State Department spokesman Matthew Miller reacted Tuesday to the cease-fire efforts, saying, ‘Where have they been for a year? For a year, the world has been calling on Hezbollah to stop the attacks across the border into Israel.’
Positive economic developments in the US amid steady economic growth and low unemployment also aided the rise in oil prices. While optimism continues in the US that inflation will be reduced to the targeted level before the economy goes into recession, experts are awaiting the inflation data scheduled for Thursday for further clues about economic activity.
Experts noted that the upcoming inflation data may give signals about whether the US economy will make a soft landing. In addition, the Federal Open Market Committee (FOMC) meeting minutes are expected to give possible cues about future policies.
Analyst expect that the US Federal Reserve (Fed) will cut interest rates by 25 basis points each in the two Fed meetings until the end of the year. #Oil Prices Rally over Hurricane Milton, Middle East Risks
