Recent changes in the oil market have drawn investor interest. After a sharp drop earlier this week, oil prices are beginning to recover, helped by the US’s plans to refill its Strategic Petroleum Reserve. With ongoing tensions between Israel and Iran, market participants are carefully monitoring supply and demand trends as winter approaches.
Oil prices edged higher on Tuesday, with Brent crude increasing by 44 cents to reach USD 71.86 per barrel, and WTI crude rising by 45 cents to USD 67.83. This follows a significant 6% drop on Monday, marking the lowest price since early October.
The decline was largely triggered by intensifying tensions in the Middle East, where Israeli airstrikes near Iran avoided any direct hits to oil infrastructure, preventing further disruption in oil supply.
However, on Tuesday, investor sentiment found renewed support after the US announced plans to purchase up to 3 million barrels for its Strategic Petroleum Reserve (SPR), aiming to stabilise demand amid the continuing geopolitical concerns influencing the market.
The decision by the US to replenish its SPR reflects an intent to strengthen strategic reserves.
Although budgetary limitations may restrict further acquisitions without additional congressional approval, this action underscores a supportive approach to the oil market in light of global demand challenges.
These purchases, set to extend through May next year, may provide a steady buffer for oil prices while signalling cautious optimism from the US on maintaining stability in energy supplies.
The recent escalation in Israel-Iran relations continues to weigh on oil market stability. Over the weekend, Israel conducted three waves of airstrikes near Tehran and western Iran, targeting missile facilities while deliberately avoiding Iran’s oil infrastructure.
This focus on specific military objectives has lessened the immediate risk of oil flow disruptions, but market anxiety persists as Iranian officials hinted on Monday at the possibility of a further response, which could create additional pressures on future oil supplies.
The US has cautioned Iran against continued aggression, introducing further uncertainty into market expectations.
On the demand front, the Northern Hemisphere’s winter season has yet to significantly increase kerosene usage, and China’s economic recovery remains sluggish, impacting demand from the world’s largest oil consumer.
Traders are also anticipating inventory data updates from the American Petroleum Institute and the Energy Information Administration, with early indications suggesting a potential build-up in crude and gasoline stocks alongside a reduction in distillates, which may point to shifting fuel demands.
As winter approaches and China’s recovery outlook remains uncertain, any unexpected geopolitical developments could reintroduce volatility to oil markets.
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