Oil prices fall in a choppy trade session on Thursday. The decline comes after a two-session streak where prices gained about 3%. This increase was due to growing supply risks amid tensions in the Middle East. Brent crude futures fell 25 cents, or 0.3%, settling at $78.08 a barrel. Similarly, U.S. West Texas Intermediate crude dropped 13 cents, or 0.3%, to $75.10. Both benchmarks had recovered from near-2024 lows earlier in the day before turning negative.
The potential for supply disruptions in the Middle East has caused market volatility. The killing of senior members of militant groups Hamas and Hezbollah last week has raised concerns. There is a possibility of retaliatory strikes by Iran against Israel. However, supply has not been significantly affected yet. Attacks on ships in the Red Sea have forced tankers to take longer routes, increasing transportation time and costs.
Libya's National Oil Corporation declared force majeure in its Sharara oilfield from Tuesday. The company stated that it had gradually reduced the field's production due to protests. This situation adds to the supply concerns in the global oil market.
Crude inventories in the United States, the world's largest oil consumer, fell by 3.7 million barrels. This data far exceeded analyst expectations of a 700,000-barrel draw. It marks the sixth straight weekly decline, bringing inventories to six-month lows. This suggests that demand for physical barrels remains robust, despite concerns about weak economic activity.
ANZ Research noted that the market remains on edge, awaiting a response from Iran. Meanwhile, analysts at Citi see the possibility of a bounce in prices to the low-to-mid-$80s for Brent. They highlighted that upside risks in the market persist. These risks include still-tight balances through August, heightened geopolitical risks across North Africa and the Middle East, potential weather-related disruptions through hurricane season, and light managed money positioning. Despite the current situation, oil prices fall due to the uncertainties and risks affecting the market.
Oil prices fall in choppy trade amid Middle East tensions and a significant drop in U.S. crude inventories.
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