Oil Prices Rise Amid Middle East Tensions

By Nicole Jao

NEW YORK (Reuters) – Oil prices edged up on Wednesday due to worries that escalating conflicts in the Middle East could threaten oil supplies from the world’s top producing region. However, a significant increase in U.S. crude inventories limited the gains.

Brent futures rose 34 cents, or 0.46%, settling at $73.90 per barrel, while U.S. West Texas Intermediate crude climbed 27 cents, or 0.39%, to settle at $70.10 per barrel.

Escalation of Conflict

On Tuesday, Iran launched over 180 missiles at Israel, marking its largest direct attack on the country. Both Israel and the United States have vowed retribution, indicating that regional conflict is intensifying.

According to Axios, increased Israeli retaliation could potentially target Iranian oil production facilities among other strategic sites.

Iran, however, stated that its missile attack was over unless further provoked, warning of widespread destruction in response to any Israeli action.

Tamas Varga of oil brokerage PVM noted that an attack on Iran’s oil infrastructure could lead Tehran to retaliate against Saudi oil facilities, similar to the 2019 attacks. “Any of these events would irretrievably send oil prices considerably higher,” he stated.

Adding to the tensions, the Israeli military deployed regular infantry and armored units to support ground operations in southern Lebanon against Hezbollah, which is backed by Iran.

During a United Nations Security Council meeting, both Israel and Iran made threats of retaliation if attacked. Capital Economics highlighted the risk that a major Iranian escalation could involve the U.S. in the conflict. Notably, Iran accounts for about 4% of global oil output, raising questions about Saudi Arabia’s potential production adjustments if Iranian supplies face disruption.

U.S. Crude Inventories Increase

Iran’s oil output reached a six-year high of 3.7 million barrels per day in August, according to ANZ analysts.

In the U.S., crude inventories rose by 3.9 million barrels to 417 million barrels for the week ending September 27, contrary to analysts’ expectations of a 1.3 million-barrel draw. Gasoline stocks also rose, while distillate inventories fell.

Matt Smith, Kpler’s lead oil analyst, explained that seasonal refinery maintenance has reduced refining activity, leading to a build in crude inventories.

OPEC+ met on Wednesday, maintaining its oil output policy unchanged and planning to increase output by 180,000 barrels per day each month starting December. According to ANZ analysts, any indication of increased production could counterbalance concerns regarding Middle Eastern supply disruptions.

The Wall Street Journal reported that Saudi Arabia's oil minister cautioned that oil prices might drop to $50 per barrel if OPEC+ members fail to adhere to their agreed production cuts. OPEC subsequently refuted the claim as “wholly inaccurate and misleading.”