Oil Prices Fall as US Crude Stocks Surge, Middle East Risks Limit Losses
SINGAPORE — WEB DESK: Global oil prices fell on Wednesday after an unexpectedly large increase in US crude inventories prompted traders to take profits following a two-day rally, although continuing supply disruptions across the Middle East prevented a steeper decline.
International benchmark Brent crude futures fell 73 cents, or 0.67%, to $108.02 per barrel at 0450 GMT, while US West Texas Intermediate crude dropped $1.10, or 1.04%, to $104.73 a barrel.
The decline followed strong gains on Tuesday, when both benchmarks settled more than $3 higher and reached their highest levels since May 19. The rally had been driven largely by mounting concerns over disruptions to Saudi Arabian exports and other Middle Eastern energy flows.
US Crude Stocks Jump 7.1 Million Barrels
The immediate downward pressure came from preliminary US inventory figures.
US crude inventories increased by 7.1 million barrels in the week ended September 11, according to market sources citing data from the American Petroleum Institute.
The increase was particularly notable because analysts surveyed by Reuters had expected inventories to fall by around 1.6 million barrels.
The API data also indicated unexpected increases in US gasoline and distillate inventories, adding further pressure to crude prices.
A rise in petroleum inventories can weigh on prices because it may signal that near-term supply is exceeding demand. However, analysts noted that higher US stocks do not necessarily resolve the physical supply constraints affecting other parts of the global oil market.
Saudi Supply Disruptions Keep Market Tight
Middle East developments continued to provide substantial support to prices.
Saudi Arabia suspended oil loadings at its Yanbu port after shutting its strategically important East-West Pipeline following an attack on the infrastructure. The disruption has raised concerns about Saudi Arabia’s ability to maintain crude exports through the Red Sea while alternative regional shipping routes are under pressure.
Saudi Arabia has also cut some oil shipments to Europe, adding to concerns over the availability of physical crude supplies.
The kingdom is attempting to mitigate the disruption by offering additional crude to Asian refiners through ship-to-ship transfers off Oman’s Sohar port, according to people familiar with the arrangements cited by Reuters.
The tightness has spread beyond crude oil. European diesel futures reached a record high on Tuesday, highlighting the pressure on refined fuel markets as Middle Eastern disruptions restrict crude and petroleum-product flows.
Strait of Hormuz Traffic Drops Sharply
Another major concern for traders is the continuing disruption around the Strait of Hormuz, one of the world’s most important energy shipping routes.
Preliminary shipping data showed only four visible vessel transits through the strait on Tuesday, down from seven a day earlier and far below the 10-day average of 18.
Before the current regional conflict, the waterway handled roughly one-fifth of global oil and liquefied natural gas supplies, making any sustained reduction in shipping traffic a major risk for international energy markets.
The fall in Hormuz traffic has come as attacks and military tensions across the region have intensified.
Saudi Arabia’s East-West Pipeline had become particularly important because it provides the kingdom with a route to the Red Sea that bypasses Hormuz. Reuters reported earlier this week that the pipeline outage could put around 4% of global oil supply at risk if it remains out of service for an extended period.
Oil Market Caught Between Two Forces
The latest session therefore reflects two competing forces in the global crude market.
On one side, the unexpectedly large US inventory build is weighing on prices by easing immediate concerns about American supply.
On the other, physical supply disruptions involving Saudi Arabia, Yanbu and the Strait of Hormuz are preventing prices from falling sharply.
This tension explains why crude prices retreated on Wednesday but remained above $100 per barrel after Tuesday’s rally.
For oil-importing economies, including Pakistan, sustained crude prices at elevated levels can increase import costs and potentially feed into domestic fuel prices and inflation, although the eventual impact depends on exchange rates, government pricing decisions, taxes and the duration of the global supply disruption.
Traders will now closely watch official US petroleum inventory data as well as developments surrounding Saudi export infrastructure and shipping through the Gulf for the market’s next direction.
