Oil sizzles from 33-month low on Israel-Iran war, Brent up 3% to $74; China demand, US inventories limit gains

International crude oil prices climbed three per cent before paring gains on Wednesday, October 2, on worries that the escalating conflict in the Middle East due to the Israel-Iran war could threaten oil supplies from the world’s top-producing region. However, a large build-up in US crude inventories limited gains.

Brent futures were last up 84 cents, or 1.14 per cent, to $74.40 per barrel. US West Texas Intermediate (WTI) crude rose 87 cents, or 1.25 per cent, to $70.70 per barrel. Back home, crude oil futures last traded 2.75 per cent higher at ₹5,900 per barrel on the multi-commodity exchange (MCX). Brent hit a 33-month low before the Israel-Iran war supported the uptrend in prices.

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Crude oil sizzles from 33-month low: What’s driving prices?

 -On Tuesday, Iran fired more than 180 missiles at Israel, its biggest-ever direct attack on the country. Israel and the US vowed retribution for the attack, a sign that conflict in the region is intensifying. Israel’s retaliation could include targeting Iranian oil production facilities among other strategic sites, US news website Axios reported, citing Israeli officials.

-On Wednesday, Iran said its missile attack on Israel was over, barring further provocation. It added that any Israeli response to its attack would be met with widespread destruction. An attack on Iran’s oil infrastructure could provoke Tehran to respond with a strike on Saudi oil facilities, similar to one conducted in 2019 on crude processing facilities there.

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-Analysts said that any of these events would irretrievably cause oil prices to rise considerably. In another escalation of the conflict, the Israeli military on Wednesday sent regular infantry and armoured units to join ground operations in southern Lebanon against Iran-backed Hezbollah.

-The United Nations Security Council scheduled a meeting about the Middle East for Wednesday, and the European Union called for an immediate ceasefire. Analysts added that Iran’s oil output rose to a six-year high of 3.7 million barrels per day (bpd) in August

-“A major escalation by Iran risks bringing the US into the war,” Capital Economics said in a note. “Iran accounts for about four per cent of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.”

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-Offsetting earlier gains, crude inventories rose by 3.9 million barrels to 417 million barrels in the week ended September 27, said the Energy Information Administration (EIA). Gasoline stocks also rose last week, but distillate inventories fell.

-On Wednesday, a meeting of the top ministers of the Organisation of Petroleum Exporting Countries (OPEC) kept the oil output policy unchanged. The group is set to raise output by 180,000 bpd each month starting in December.

-The Wall Street Journal reported on Wednesday, citing delegates from the oil producers group, that Saudi Arabia’s oil minister said that oil prices could drop to as low as $50 per barrel if OPEC members do not adhere to agreed-upon production limits.