NEW YORK: Oil prices climbed 1% on Wednesday on worries that the escalating conflict in the Middle East could threaten oil supplies from the world’s top producing region, but a large build in U.S. crude inventories limited gains.
Brent futures up 84 cents, or 1.14%, to $74.40 per barrel by 11:16 a.m. EDT (1516 GMT). U.S. West Texas Intermediate (WTI) crude rose 87 cents, or 1.25%, to $70.70 per barrel.
On Tuesday, Iran fired more than 180 missiles at Israel, its biggest ever direct attack on the country. Israel and the U.S. 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, U.S. news website Axios reported on Wednesday, 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, said Tamas Varga of oil brokerage PVM.
“Any of these events would irretrievably send oil prices considerably higher,” he said.
Oil prices jump 4% on reports Iran preparing to attack Israel
In another escalation of the conflict, the Israeli military on Wednesday sent regular infantry and armored 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.
Iran’s oil output rose to a six-year high of 3.7 million barrels per day (bpd) in August, ANZ analysts said.
“A major escalation by Iran risks bringing the U.S. into the war,” Capital Economics said in a note. “Iran accounts for about 4% of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.”
Offsetting earlier gains, crude inventories rose by 3.9 million barrels to 417 million barrels in the week ended Sept. 27, the Energy Information Administration said, compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel draw. Gasoline stocks also rose last week, but distillate inventories fell.
“As we descend into seasonal refinery maintenance, a chunky drop in refining activity has ushered in a build to crude inventories,” said Matt Smith, lead oil analyst at Kpler.
On Wednesday, a meeting of the top ministers of OPEC+ has kept oil output policy unchanged, an OPEC+ source said while the meeting was under way. The group is set to raise output by 180,000 bpd each month from December.
“Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East,” ANZ analysts said.
However, Saudi Arabia’s oil minister said that oil prices could drop to as low as $50 per barrel if OPEC+ members do not stick to agreed-upon production limits, the Wall Street Journal reported on Wednesday citing delegates from the oil producers group.
American Dollar Exchange Rate