Oil prices saw an increase on Wednesday due to a larger-than-expected drop in US crude stockpiles and escalating tensions in the Middle East. Brent crude futures rose by 0.5% to $86.70 per barrel, while U.S. West Texas Intermediate crude futures climbed 0.5% to $83.23 per barrel. Both benchmarks had reached their highest levels since April during intraday trading on Tuesday but closed lower as concerns over Hurricane Beryl disrupting production in the Gulf of Mexico eased.
Analysts predict that Hurricane Beryl will weaken into a tropical storm as it enters the Gulf of Mexico later in the week, reducing the potential impact on oil supplies. Despite fears of supply disruptions, the market saw some unwinding of gains due to greater clarity on the situation. A significant drawdown in US crude inventories provided support for oil prices, along with ongoing tensions in the Middle East.
US crude oil inventories fell by 9.163 million barrels in the week ended June 28, according to the American Petroleum Institute. However, gasoline inventories rose by 2.468 million barrels, and distillates fell by 740,000 barrels. Market expectations were for a 700,000-barrel draw in crude inventories, a 1.3-million-barrel drop in gasoline stocks, and a 1.2-million-barrel fall in distillates stocks.
Despite the drawdown in crude inventories, some investors sought to take profits from the recent price rally to the highest levels since April. The Energy Information Administration is set to release its weekly data on Wednesday, which will provide further insights on inventory levels and demand trends. Meanwhile, US gasoline demand is expected to increase as the summer travel season picks up with the Independence Day holiday.
In the Middle East, tensions have been escalating with Israeli forces bombing areas in the southern Gaza Strip, leading to thousands of Palestinians fleeing their homes. The Israeli military and Hezbollah have also been exchanging fire along Lebanon’s southern border. Analysts believe that the risk of a broader conflict in the region could impact oil prices in the near term, adding upside risks to the outlook.
OPEC’s oil output rose in June for the second consecutive month, as higher supply from Nigeria and Iran offset voluntary supply cuts by other members. The wider OPEC+ alliance has been working to stabilize oil markets amid fluctuating demand and geopolitical tensions. Overall, the oil market remains sensitive to developments in the Middle East, inventory levels, and global demand trends, with prices responding to supply disruptions and geopolitical risks.
