Oil prices saw a robust increase of nearly $2 during early trading on Wednesday. This surge was driven by industry data indicating a more significant draw in US crude inventories than expected, coupled with concerns about potential disruptions in the oil supply from the Middle East due to the deepening conflict between Israel and Hamas.
Brent crude futures experienced a notable rise of $1.62, equivalent to 1.8%, bringing the price per barrel to $91.49 at 0148. Concurrently, the market was eagerly anticipating the release of Chinese GDP figures. West Texas Intermediate crude (WTI) futures also displayed a healthy increase of $1.77, or 2%, reaching $88.43 per barrel.
The data suggested that US crude stocks fell by approximately 4.4 million barrels during the week ending on October 13. This figure greatly exceeded the expectations of analysts who had forecast a more modest drawdown of 300,000 barrels. Official data from the US government was scheduled for release later on Wednesday.
The deepening conflict between Israel and Hamas in the Middle East escalated tensions. Approximately 500 Palestinians lost their lives in an explosion at a Gaza City hospital on Tuesday, an incident that both Israeli and Palestinian officials blamed on each other. In response to the situation, US President Joe Biden had plans to visit Israel on Wednesday to express support for the country in its ongoing conflict with the Palestinian Islamic Jihad militant group, Hamas. The White House underlined Biden’s goal of preventing the escalation of the conflict.
Turning to the demand side, it was expected that data to be published on Wednesday would show that China’s economy had slowed down in the third quarter. This deceleration was largely attributed to persistently weak demand, despite improved prospects resulting from increased stimulus measures. These measures offered hope that Beijing might still manage to attain its full-year growth target.
In addition, US retail sales for September outperformed expectations, raising the possibility of another interest rate hike by the Federal Reserve before the end of the year. These interest rate increases, intended to curb inflation, have the potential to slow down economic growth and subsequently reduce the demand for oil.
Furthermore, on Tuesday, the government of Venezuela and its political opposition reached an agreement on electoral guarantees for the 2024 presidential elections. This accord could potentially pave the way for relief from US sanctions, which, in turn, might contribute to increased oil supplies.
The United States had imposed sanctions on Venezuelan oil exports since 2019. While the easing of sanctions was expected to bolster oil supplies, analysts cautioned that significant increases from Venezuela might be delayed due to the lack of investment in the country’s oil industry.