Oil prices experienced a slight decline on Friday, concluding the trading day lower. However, this drop came after a notable two-week upward trend as investors navigated through various influential factors. Key considerations included potential supply disruptions in the Middle East resulting from geopolitical tensions and the aftermath of Hurricane Milton, which has had significant implications for fuel demand in Florida.
Specifically, Brent crude futures saw a reduction of 36 cents, representing a 0.45% decrease, ending the day at $79.04 per barrel. In contrast, U.S. West Texas Intermediate (WTI) crude futures decreased by 29 cents, or 0.38%, settling at $75.56 per barrel. Despite these daily setbacks, both benchmarks recorded an increase exceeding 1% for the past week, signaling resilience in market sentiment.
The increase in weekly performance can be attributed to several factors influencing trader behavior. Notably, hedge funds and money managers have ramped up their net long positions in Brent crude, with an uptick of 123,226 contracts, bringing the total to 165,008 for the week ending October 8. This shift reflects growing confidence in oil prices despite recent volatility.
Market fluctuations were notably affected by U.S. crude oil inventory reports. A surprising increase of 5.8 million barrels in crude oil stocks exceeded analysts’ expectations of a 2.0 million barrel rise, which sparked worries over excess supply. Meanwhile, the U.S. dollar’s strength—bolstered by recent Federal Reserve meetings indicating a cautious approach to interest rate cuts—further exerted pressure on oil prices. However, underlying geopolitical tensions in the Middle East and anticipation of increased demand from China provided a counterbalance, sustaining oil prices at lower levels.
Factors Impacting Oil Prices
This month, crude oil prices have surged significantly due to escalating tensions following Iran’s missile strikes on Israel. Launched on October 1, these attacks prompted concerns regarding potential retaliatory actions that might impact Iranian oil infrastructure. In response, Israeli Defense Minister Yoav Gallant warned that any retaliation would be “lethal, precise, and unexpected.”
Iran’s involvement in regional conflicts through support of groups like Hezbollah, Hamas, and the Houthis amplifies concerns about broader conflict that could disrupt oil supply in the Middle East. Concurrently, Gulf states are urging the U.S. to restrain Israel from targeting Iranian oil facilities, fearing that this could provoke retaliation against their own oil infrastructure.
In addition to geopolitical factors, Hurricane Milton, which moved into the Atlantic after wreaking havoc in Florida, has raised apprehensions regarding fuel demand in the region. The hurricane has already claimed at least 10 lives and disrupted power for millions, affecting logistics and fuel distribution networks.
The Future of Oil Prices
Market analysts, including Yeap Jun Rong, a strategist at IG, have emphasized that concerns regarding surging crude inventories and a potentially slower pace of monetary easing by the U.S. Federal Reserve may hinder immediate oil price advancements. These factors contribute to a climate of uncertainty in the oil market.
On the supply front, Libya’s National Oil Corporation announced a restoration of oil production to 1.25 million barrels per day, recovering to pre-crisis levels after overcoming a central bank crisis. This boost in supply becomes significant amid an already strained market.
Investor sentiment has also been tempered by disappointing third-quarter earnings reported by major oil companies. For instance, BP announced a substantial decline in refining margins, which could potentially lower its profits by up to $600 million due to a global slowdown in fuel demand and diminishing oil trading activities. This combined outlook on earnings may cause investors to recalibrate their expectations regarding the future trajectory of oil prices.
