Global oil prices experienced a significant drop of over $2 per barrel on Thursday, driven by diminishing fears of a wider Middle East conflict and indications of waning U.S. demand.
Brent crude futures concluded at $87.93 per barrel, marking a decline of $2.20, equivalent to 2.44%. The previous day had seen Brent settle nearly 2% higher. U.S. West Texas Intermediate crude futures also saw a decline, finishing at $83.21 per barrel, a decrease of $2.18, or 2.55%.
Recent oil price hikes were primarily attributed to concerns of potential disruptions in global crude supplies stemming from the conflict between Israel and the Palestinian militant group Hamas, which had the potential to draw in Iran and its regional allies.
However, these concerns were notably receding by midday on Thursday.
John Kilduff, a partner with Again Capital LLC, commented, “The security premium we’ve been paying since earlier in the month seems to be deflating.”
As the U.S. and other nations encouraged Israel to delay a full-scale invasion of Gaza, the market’s apprehensions appeared to ease. The region had been experiencing nearly three weeks of Israeli airstrikes following a mass killing incident in southern Israel, which was attributed to Iranian-backed Hamas.
Price Futures analyst Phil Flynn highlighted the market’s sensitivity, stating, “It’s crucial to understand that we’re just one headline away from a substantial rally in the market.”
Concurrent worries about the global economy’s overall health exerted additional downward pressure on oil prices. U.S. Treasury yields were approaching 5%, leading global equities to multi-month lows.
In contrast, the U.S. economy posted its strongest growth in almost two years during the third quarter, boosting expectations of the Federal Reserve and maintaining high-interest rates.
A reported increase in U.S. crude inventories during the latest week indicated weakening demand. Inventories grew by 1.4 million barrels to reach 421.1 million barrels, surpassing the 240,000-barrel gain anticipated by Reuters poll analysts.
Markets were also monitoring the European Central Bank’s decision to maintain interest rates, breaking a 10-consecutive-rate-hike streak.
Looking forward, the focus will shift to OPEC and its allies’ plans for production levels in the coming year. OPEC+, led by Saudi Arabia and Russia, had earlier reduced production by 1.3 million barrels per day (bpd) and extended the cut in September through the year-end.
The next scheduled meeting for OPEC members is set for late November, and any continuation of production cuts in the new year could have bullish implications for the oil market.
