Oil futures: Prices up on geopolitical tensions, Saudi flags cut extension

Quantum Commodity Intelligence – Crude oil futures Thursday were higher for most of the session amid an uncertain outlook over the immediate risk to energy supplies following the Hamas-led attacks on Israel, but gains were mostly wiped out following the bearish EIA weekly report. 

Front-month Dec23 ICE Brent futures were trading at $86.37/b (1625 GMT), compared to day's range $85.18-87.64/b and Wednesday's settle of $85.82/b.

At the same time Nov23 NYMEX WTI was trading $83.62/b versus Wednesday's settle of $83.49/b, although the US benchmark lost ground to Brent following the US stockbuild.

But over half of the post-weekend gains had been eroded with analysts increasingly seeing short-term oil fundaments not impacted by the Israel/Gaza conflict, although prices found renewed support as sanctions could tighten on Iran moving into the new year.

"We first consider a modest downside scenario where Iranian 2024 output is 0.4 million bpd below our baseline, for instance because increased Western scrutiny around exports reduces supply to year-ago levels. All else equal, this scenario would raise our 2H24 Brent price forecasts by $5 to $105/b," said Goldman Sachs in a client note.

Israel's Tamar gas field remains shut, which has underpinned natural gas and LNG prices this week, in turn supporting gasoil cracks.

Markets also edged up after OPEC+ leaders Saudi Arabia and Russia reiterated that the cooperation will continue, hinting at extended cuts.

Oil prices initially shrugged off latest data from the American Petroleum Institute which revealed a near 13-million-barrel drop in crude stocks against analysts' expectations for a much smaller draw.

Gasoline increased 3.6 million barrels, while the API said distillate stocks dropped 3.5 million barrels.

But prices retreated later in the session after the latest EIA data showed a 10-million barrel build in crude stocks, while output soared above 13 million bpd.

Economy

"The only thing that is becoming clear for energy traders is that the road for the global growth recovery is getting rockier," said Ed Moya, senior market analyst at brokerage Oanda, commenting on Wednesday's lower oil prices.

In minutes released late Wednesday, most Federal Reserve officials believe one more rate hike is needed, while the speed at which inflation cools in the coming months will determine how long rates remain elevated.

"A majority of participants judged that one more increase in the target federal funds rate at a future meeting would likely be appropriate, while some judged it likely that no further increases would be warranted," the minutes said.

Producer prices in the US increased by more than markets were expecting, with figures from the Labor Department showing PPI up by 0.5% for the month of September.

This was higher than a projected 0.3% increase markets had forecasted, although below the 0.7% increase seen in August.

But energy inflation remains a problem with gasoline up 5.4% and the largest contributor to the increase, while food prices gained 0.9% in the same period.