Key Points
- Brent falls 0.7 per cent while WTI drops 1 per cent
- US crude inventories jump 7.1 million barrels last week
ISLAMABAD: Oil prices eased on Wednesday after an unexpected increase in US crude inventories, but supply disruptions in the Middle East kept Brent crude above $107 a barrel and West Texas Intermediate above $104.
Brent crude futures fell 73 cents, or 0.7 per cent, to $108.02 a barrel, while US West Texas Intermediate (WTI) crude dropped $1.10, or 1 per cent, to $104.73.
Both benchmarks had gained more than $3 on Tuesday, reaching their highest closing levels since May 19.
The immediate pressure on prices came from US inventory data.
The American Petroleum Institute reported that US crude stocks increased by 7.1 million barrels in the week ended September 11, sharply exceeding market expectations for a decline of about 1.6 million barrels. Gasoline and distillate inventories also increased.
The inventory buildup provided some relief to the market, but it has not removed concerns about physical oil supplies.
Saudi Arabia suspended crude loadings at its Red Sea export hub of Yanbu after an attack on its East-West oil pipeline.
The pipeline provides a route for moving Saudi crude to the Red Sea without using the Strait of Hormuz, and it could carry about 5 million barrels per day, according to industry data cited by Reuters. Repairs could take several weeks, although partial flows could resume earlier.
The disruption has already affected Saudi exports. Some European customers have received cancellations for September cargoes, while Saudi Arabia is offering additional crude to Asian refiners through ship-to-ship transfers near Oman as an alternative route.
The Strait of Hormuz remains another major source of uncertainty. Commodity-vessel traffic through the waterway fell to fewer than 10 transits a day over the weekend, compared with a 10-day average of about 14. Before the current conflict, the strait carried nearly one-fifth of global oil supplies.
The combination of the Saudi pipeline disruption and reduced Hormuz traffic has made the physical supply situation more important for oil markets.
Oil traders watch geopolitics
Traders are also monitoring attacks on commercial shipping and energy infrastructure across the region, which could further restrict crude movement.
The latest price movement therefore reflects two competing forces: rising US inventories are putting downward pressure on prices, while disruptions to Middle Eastern production and export routes are supporting them.
Oil had already risen sharply over the past week. Brent moved above $100 a barrel and gained about 8 per cent last week, while Tuesday’s settlement took Brent to $108.75 and WTI to $105.83.
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For oil-importing economies, sustained crude prices above $100 a barrel raise the cost of fuel, transport and industrial production and can add to inflation. The longer the disruptions continue, the greater the risk that higher energy costs feed into consumer prices and economic activity.
For now, the market is balancing the bearish effect of rising US inventories against the possibility of prolonged disruptions to Middle Eastern oil flows.
Any restoration of Saudi pipeline operations or improvement in shipping through the Strait of Hormuz could ease supply fears. At the same time, further attacks or prolonged closures could put renewed upward pressure on crude prices.
Oil prices have swung sharply in recent weeks as traders have responded to changing assessments of supply disruptions and geopolitical risks.
Brent has moved from below $80 a barrel to above $100, with daily gains and losses reflecting developments around Saudi exports, the Strait of Hormuz, US inventories and the wider US-Iran conflict.
