Oil Prices Surge Nearly 3% Amid Rising Middle East Tensions and U.S. Crude Stockpile Decline.
Global benchmark Brent crude for September delivery, which expired on Wednesday, climbed $2.09, or 2.66%, to close at $80.72 per barrel. The more actively traded October contract also saw a significant rise, gaining $2.77 to settle at $80.84 per barrel. U.S. West Texas Intermediate (WTI) crude experienced its largest daily gain since October 2023, jumping $3.18, or 4.26%, to close at $77.91 per barrel.
This sharp increase comes despite both Brent and WTI recording overall declines for July, with Brent down nearly 7% and WTI dropping almost 4% for the month. The rise in oil prices was fueled by concerns over potential disruptions in the oil-producing Middle East region, exacerbated by the assassination of Hamas leader Ismail Haniyeh in Iran and a series of retaliatory strikes, including Israel’s airstrike on Beirut and U.S. military action in Iraq.
In addition to geopolitical factors, U.S. crude inventories played a crucial role in the price hike. According to government data, U.S. crude stocks fell by 3.4 million barrels last week, more than triple the 1.1 million-barrel decline analysts had anticipated. This marks the fifth consecutive week of stockpile drawdowns, the longest streak since January 2021.
“Robust exports have helped to offset lower refining activity and strong imports, contributing to the continued drawdown of crude inventories,” said Matt Smith, lead oil analyst at Kpler. “Geopolitical risk remains the key driver of today’s rally.”
The tensions in the Middle East have reignited concerns over oil supply disruptions, which had eased earlier in the week following hopes of a Gaza ceasefire. However, analysts caution that unless key oil and gas infrastructure is directly impacted, the current price spike may be temporary.
Adding to the market’s volatility, a 0.4% decline in the U.S. dollar index provided additional support for oil prices. A weaker dollar typically boosts demand for oil, as it makes the commodity cheaper for holders of other currencies.
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Despite the price increase, concerns about fuel demand in China, the world’s largest crude oil importer, and the ample spare production capacity held by OPEC members continued to weigh on the market. China’s manufacturing activity contracted for the third consecutive month in July, further dampening demand prospects.
OPEC+ is expected to maintain its current production deal and may begin unwinding some output cuts starting in October. Top ministers from OPEC+ are scheduled to hold an online joint ministerial monitoring committee meeting on Thursday to discuss the group’s next steps.
The combination of geopolitical tensions and inventory data has led to a volatile trading environment, with oil prices experiencing significant fluctuations as market participants react to the latest developments.