Oil prices edge lower as easing Middle East risk premiums and rising U.S. crude inventories exert downward pressure
Oil prices dipped slightly on Wednesday as concerns over demand outweighed the potential supply disruptions from the conflict in the Middle East and Hurricane Milton in the U.S.
Brent crude futures were down 0.3% to $76.94 a barrel, while West Texas Intermediate crude futures slipped 0.4% to $73.28 a barrel.
Middle East Risk Premium Eases
Oil prices plunged by more than 4% on Tuesday after reports suggested that Hezbollah, the Lebanese militant group, was seeking a ceasefire with Israel, signaling a possible de-escalation in the Middle East conflict.
Goldman Sachs noted that the geopolitical risk premium in oil markets has slightly decreased this week, following sharp rises in both Brent and call options implied volatility last week. However, Goldman Sachs still forecasts that Brent could see an upside of $10-$20 per barrel if Iranian production is disrupted, though prices may stabilize near current levels without major supply interruptions.
Concerns Over Chinese Demand
Dampened expectations for further stimulus from China, the world’s largest oil importer, added pressure to oil prices. Investors were disappointed after Chinese authorities refrained from introducing more aggressive fiscal measures to support the country’s slowing economy, which has been hit by weak consumer spending and a real estate downturn.
Ahead of China’s Golden Week holiday, the government had implemented a series of stimulus measures, including interest rate cuts, but markets were hoping for more action as the new week began.
U.S. Inventories Surge
The American Petroleum Institute (API) reported a significant increase in U.S. oil inventories, rising by 10.9 million barrels last week, far exceeding expectations of a 1.95 million barrel build. This raised concerns about weakening U.S. fuel demand, especially as parts of the country deal with the aftermath of destructive hurricanes.
Hurricane Milton in Focus
Traders are closely monitoring the potential impact of Hurricane Milton, one of the strongest storms in recent history. The Category 5 hurricane is expected to make landfall in Florida this week, though it is anticipated to miss most key oil and gas facilities in the Gulf of Mexico.
