Oil prices surged by approximately 2% on Wednesday, fueled by concerns over the escalating conflict in the Middle East potentially disrupting oil supplies. This increase in oil prices comes in tandem with the anticipation of a forthcoming announcement from the U.S. Federal Reserve, which could offer insights into future interest rate policies.
At 10:50 a.m. EDT (1450 GMT), Brent futures for January delivery saw a rise of $1.63, equivalent to a 1.9% increase, reaching $86.65 per barrel. However, it’s worth noting that the January contract remained below the settlement price of the December contract from the previous day.
U.S. West Texas Intermediate (WTI) crude also experienced an uptick, climbing $1.64, or 2.0%, to reach $82.66 per barrel.
The U.S. Energy Information Administration (EIA) reported that energy companies added 0.7 million barrels of crude to their stockpiles during the week ending on Oct. 24. This figure was lower than the 1.3 million barrel build anticipated by analysts in a Reuters poll, as well as the 1.3 million barrel build reported by the American Petroleum Institute (API), an industry group, a day earlier.
Phil Flynn, an analyst at Price Futures Group, commented, “Nothing that was really out of line with expectations. It wasn’t really enough to move the needle here. Crude storage is not up as much as the market was expecting.”
Andrew Lipow, president of Lipow Oil Associates in Houston, emphasized that the market will remain heavily influenced by developments in the Middle East and concerns regarding potential supply disruptions. These disruptions could arise from either Iranian oil being kept off the market or Iran taking steps to restrict flows through the Strait of Hormuz.
In Gaza, the evacuation of a first group of injured individuals to Egypt was reported by both a source and Egyptian media, as Israeli forces continued their campaign against Hamas militants.
Iran’s Supreme Leader Ayatollah Ali Khamenei called on Muslim states to halt oil and food exports to Israel, urging an end to the bombardment of the Gaza Strip, according to state media reports.
As a member of the Organization of the Petroleum Exporting Countries (OPEC), Iran produced around 2.5 million barrels per day of crude in 2022, as indicated by U.S. energy data.
Callum Macpherson, Head of Commodities at Investec, noted that if there is no threat to output resulting from the conflict, “oil may struggle to sustain prices around recent highs without support from OPEC+ into 2024, making their meeting later this month crucial.”
Interest Rate Policy
The Federal Reserve is widely anticipated to maintain its current interest rates at the conclusion of its policy meeting.
In Europe, a flash reading from Eurostat revealed that October inflation in the Euro zone hit its lowest point in two years. This has reinforced the belief that the European Central Bank is unlikely to implement interest rate hikes in the near future. The Bank of England’s meeting on Thursday is also being closely watched.
It’s important to note that increases in interest rates, implemented to combat inflation, can potentially slow down economic growth and subsequently reduce demand for oil.
Meanwhile, in China, the world’s largest oil importer, a private survey unexpectedly indicated a contraction in factory activity for October. This adds to the downbeat official figures released a day earlier.
