Oil Drops as US Stockpile Increase Undercuts Israel War Premium

Oil fell after US crude stockpiles increased, providing a buffer against heightened geopolitical risks in Israel and Gaza.

(Bloomberg) — Oil fell after US crude stockpiles increased, providing a buffer against heightened geopolitical risks in Israel and Gaza.

West Texas Intermediate settled below $83 as US inventories rose 10.2 million barrels, the biggest increase since February. Meanwhile, demand for gasoline continues to hover near 2008 lows, pushing gasoline futures to settle at about $2.17 a gallon, the lowest since December 2022. Despite the pullback, traders are still keeping a close eye on developments in Israel ahead of an expected ground assault into the Gaza Strip.

Crude is also under pressure from a stronger dollar and an International Energy Agency report that showed signs of demand destruction in some regions, traders said.

Read More: Oil Price Pullback Reflects Demand Destruction, IEA Says

As traders work to gauge the risks to supply from the Israel-Hamas war, the US has also strengthened enforcement of restrictions on Russian crude. The Treasury Department sanctioned two companies and blocked ships accused of transporting Russian oil at prices above a cap instituted after its invasion of Ukraine. The move is a result of Russia having built its own fleet of vessels to sidestep the price cap.

Oil has had a volatile week following the initial shock of the Hamas assault, with the market seeking to price in the potential repercussions. There are concerns that the conflict may spread across the region, endangering crude flows. In an interview on Russian state TV, Saudi Energy Minister Prince Abdulaziz bin Salman said oil producers will continue to act to support the market preemptively.

In addition, prices have swung on data showing record-high US production and the possibility of a deal between the US and Venezuela that may boost crude flows.

This year, Saudi Arabia and Russia have spearheaded deep output cuts in a bid to drain inventories and boost prices. Their voluntary curbs have augmented a broader collective OPEC+ deal to pare production. The restrictions underpinned a major rally in the third quarter, with Brent at one point nearing $100 a barrel.

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