Oil Prices Slip Amid Uncertainty Over Supply and Middle East Conflicts

RIYADH: Oil prices fell more than 1 percent on Thursday as investors balanced the risk of supply disruption from attacks on shipping near the Strait of Hormuz against US efforts to lower petroleum shipping costs by easing sanctions on vessels.

Prices Give Back Earlier Gains

Brent crude futures fell $1.76, or 1.7 percent, to $104.30 a barrel by 09:25 a.m. Saudi time. US West Texas Intermediate futures slipped $1.06, or 1.1 percent, to $94.03. Both contracts reversed gains from the previous session.

WTI had climbed to a three-week high on Wednesday after Yemen’s Iran-backed Houthis attacked Saudi Aramco’s headquarters and Tehran said it was deploying new tactics to target ships in the Strait of Hormuz and keep oil prices high.

Attacks Near the Strait Intensify

A container ship and a dry bulk carrier both sank near the strait in the past 24 hours after being hit by projectiles in separate incidents, maritime officials said on Wednesday. Attacks around the waterway have surged over the past 10 days. Iran says it is stepping up strikes in response to the US blockade of its ports and the tougher sanctions introduced last month.

Washington Looks at Freight Costs

The Iran war has disrupted shipping and pushed freight costs to record highs. A US official said on Wednesday that the Trump administration is considering easing sanctions on so-called shadow-fleet vessels, which have carried oil and petroleum products from countries including Russia, Iran and Venezuela.

The talks center on the US potentially allowing “legal oil” to flow on previously sanctioned vessels. The goal is to help bring down prices by adding to the number of ships available to move cargoes.

Supply Is Adapting

Higher output from Russia and the Middle East has helped keep prices in check. The International Energy Agency said Russia’s crude production rose by 65,000 barrels per day in September to 8.43 million, though it remained 870,000 barrels per day lower than a year earlier. The agency also said crude exports from Middle East Gulf producers rose by 4.4 million barrels per day in September, reaching about 75 percent of prewar levels.

Priyanka Sachdeva, head of market insights at Phillip Nova, said in a client note that there is little concrete evidence of a near-term peace deal, yet oil continues to reach buyers through alternative routes and logistical arrangements. Those workarounds have helped prevent a more severe supply shock, she said, but they come at a higher cost and leave global flows open to further disruption.

US Inventories Fall, Prices Barely Move

In the United States, crude oil and distillate inventories fell last week while gasoline stocks rose, market sources said on Wednesday, citing American Petroleum Institute data. Crude stocks dropped by 11.1 million barrels in the week ended Oct. 9, a much bigger draw than analysts polled by Reuters had expected.

Even so, prices barely reacted. Haitong Futures said in a note on Thursday that the failure to rise on bullish news suggests investors are cautious about chasing prices higher at current levels. Official figures from the US Energy Information Administration are due at 12 p.m. EDT (17:00 Saudi time), delayed by a day after the Columbus Day holiday on Monday.

A Market Pulled in Two Directions

The price action reflects competing forces. On one side are real dangers: sunken ships, an attack on a major producer’s headquarters and Iranian pledges to keep pressure on shipping lanes. On the other are signs that supply is finding a way through, with Gulf exports recovering and Russian output edging up.

The sanctions proposal adds a further variable. Easing restrictions on vessels could reduce freight rates and make oil cheaper to move. It would also mark a notable change in how Washington applies pressure on some producers, so traders, shipowners and governments will watch any decision closely.

What to Watch

The EIA inventory report will show whether the large crude draw is confirmed. More incidents near Hormuz could lift prices quickly, especially if further vessels are hit. Progress on the sanctions discussion could cool freight costs, while any sign of movement toward talks between Washington and Tehran would shift market sentiment.

For consumers and businesses, fuel and shipping costs are likely to stay high while the conflict continues. For Gulf producers, the recovery in exports is welcome, but it remains well short of prewar levels, and the routes carrying that oil remain exposed.

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