Oil Prices Decline Following Bearish U.S. Supply Data Despite Middle East Tensions
Oil prices edged lower on Wednesday after the U.S. Energy Information Administration released data showing unexpected increases in fuel inventories, overshadowing earlier gains driven by potential Middle East conflict concerns.
Brent crude futures decreased by 12 cents to $65.26 per barrel by 1:12 p.m. EDT (1712 GMT), while U.S. West Texas Intermediate crude dropped 9 cents to $61.94.
The market initially showed strength earlier in the session, with prices rising approximately 1% following reports about possible Israeli military action against Iranian nuclear facilities, which raised concerns about potential supply disruptions in the crucial oil-producing region, according to Reuters.
However, the market sentiment shifted after the release of the weekly EIA inventory report, which revealed unexpected builds across petroleum products. The data showed U.S. crude inventories increased by 1.3 million barrels, while gasoline and distillate stocks rose by approximately 800,000 and 600,000 barrels, respectively.
“The EIA report saw builds for crude, gasoline and distillate, which market participants didn’t like,” said Giovanni Staunovo, an analyst at UBS.
The inventory increases came at a time when analysts had anticipated drawdowns ahead of the summer driving season, typically a period of heightened fuel demand in the United States.
Market analysts noted that the earlier price support stemmed from a CNN report citing multiple U.S. officials who suggested Israel might be preparing strikes on Iranian nuclear facilities, though the report indicated Israeli leadership had not yet made a final decision.
Given Iran’s significant oil production capacity of over 1.5 million barrels per day, any military conflict could substantially impact global oil supplies. Staunovo noted that “fears of supply disruptions have helped to drive prices higher.”
As OPEC’s third-largest producer, Iran remains a critical factor in global oil market stability. Market observers have expressed concerns that any Israeli attack might prompt Iranian retaliation, potentially including disruption of oil shipments through the strategic Strait of Hormuz—a vital passage for crude exports from Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates.
Despite these concerns, some analysts believe alternative supply sources could help offset potential disruptions. “If tensions were to escalate, we’re likely looking at temporary trade shifts or a supply hit of around 500,000 barrels a day – something OPEC+ could offset fairly quickly,” Rystad Energy analyst Priya Walia said.
Diplomatic efforts between the U.S. and Iran regarding Iran’s nuclear program have continued throughout the year, though statements from both U.S. officials and Iranian Supreme Leader Ayatollah Ali Khamenei on Tuesday indicated significant obstacles remain to reaching an agreement. Meanwhile, the U.S. has reinstituted stronger sanctions targeting Iranian crude exports.
Adding to market pressures, recent reports indicate Kazakhstan’s oil production increased by 2% in May, contradicting OPEC+ production reduction commitments.
