Oil Prices Surge on Hurricane and Supply Concerns

By Scott DiSavino

NEW YORK (Reuters) – Oil prices jumped about 4% on Thursday due to increased fuel use in the U.S. ahead of Hurricane Milton, Middle East supply risks, and signs of growing energy demand in the U.S. and China.

Brent futures rose by $2.82, or 3.7%, settling at $79.40 per barrel, while U.S. West Texas Intermediate (WTI) crude increased by $2.61, or 3.6%, settling at $75.85.

In the U.S., Hurricane Milton affected Florida, with a quarter of fuel stations reporting gasoline shortages and over 3.4 million homes and businesses losing power. Analysts from Ritterbusch and Associates noted that closures of product terminals, delayed deliveries, and disrupted pipeline movements would impact supplies into the following week due to widespread power outages. They stated, "This vast uncertainty across Florida petroleum infrastructure generally has supported gasoline values," with U.S. gasoline futures climbing about 4.1% on Thursday.

Earlier this month, crude prices spiked after Iran's missile attacks on Israel on October 1, raising fears of retaliatory actions against Iranian oil facilities. However, crude benchmarks have since stabilized, even as Israeli Defense Minister Yoav Gallant warned that any retaliatory strike against Iran would be "lethal, precise, and surprising." Iran, a member of OPEC, produced around 4.0 million barrels of fuel per day in 2023.

Iran is reported to support groups like Hezbollah in Lebanon, Hamas in Gaza, and the Houthis in Yemen. Recent Israeli strikes in Beirut killed 11 and injured 48, with at least one senior Hezbollah figure reportedly targeted. Additionally, the Houthis claimed attacks on vessels in the Red Sea and the Indian Ocean, continuing their aggression against shipping in the region since last November to show solidarity with Palestinians amid the Israeli-Hamas conflict.

Gulf states are urging Washington to prevent Israeli attacks on Iran’s oil sites, fearing escalation could threaten their own oil facilities.

Demand in the U.S. and China

China's draft law promoting private sector development may increase oil demand in the world’s second-largest oil consumer, as the country attempts to boost investor confidence amid an economic slowdown.

Meanwhile, in the U.S., there is growing optimism that the Federal Reserve will cut interest rates in November, following data showing an uptick in weekly jobless claims and an annual inflation increase at its lowest since February 2021. Analysts at ING noted, "The battle between the U.S. jobs numbers and the inflation data regarding the outlook for Fed policy remains unresolved… our base case remains 25 (basis point) rate cuts in November and December." After significant rate hikes in 2022 and 2023 to control inflation, the Fed began lowering interest rates in September. Lower rates typically reduce borrowing costs for consumers and businesses, potentially boosting economic growth and oil demand.