Oil rallied as a deadly explosion at a Gaza hospital boosted tensions in the Middle East before President Joe Biden’s arrival in the region.
After jumping by more than $2 on Tuesday, West Texas Intermediate is now approaching $89 a barrel. Following the blast, Jordanian, Egyptian, and Palestinian Authority leaders cancelled a meeting with Biden, complicating the US president’s efforts to keep the Israel-Hamas war from spreading across the Middle East.
On Wednesday, beyond the region, crude got additional support from data showing better-than-expected economic growth in China, the largest oil importer, as well as signs from the US that inventories may have drawn down further.
The Middle East crisis, sparked by Hamas’ attack on Israel on October 7, has shook the global oil market. Traders are on alert in case the fighting spreads beyond Gaza, potentially embroiling Iran, which supports Hamas. A wider conflict could jeopardize crude flows, further tightening an already-stressed oil market after months of OPEC+ supply cuts.
Head of Commodities Strategy for ING Group NV for Singapore mentioned that clearly, escalation of the conflict would increase supply risks in an already tight market and that the most immediate supply risk likely remains around Iranian barrels.
Tehran has already warned of the possibility of conflict escalation, stating earlier this week that such a conclusion was becoming “inevitable.” Meanwhile, Israel has pledged to destroy Hamas, amassing thousands of troops near the Gaza border in preparation for a ground assault on the territory.
The Gaza authorities claimed that an Israeli airstrike was the cause of the hospital explosion that claimed hundreds of lives. Meanwhile, Israel blamed a failed missile launch by the extremist organization Palestinian Islamic Jihad. The Pentagon said it didn’t have information on who was responsible.
China’s gross domestic product grew by 4.9% in the third quarter of this year, exceeding projections and providing proof that the government’s efforts to boost the economy were beginning to bear fruit. September saw a 17% increase in apparent oil demand.
Stockpiles will be scrutinized in the US. According to Oilprice.com, the American Petroleum Institute reported that inventories at the Cushing, Oklahoma, hub fell by about 1 million barrels. If confirmed by official data due later on Wednesday, that would cut them to the lowest level since 2014. If confirmed by official data due later on Wednesday, that would cut them to the lowest level since 2014.
Time spreads are still indicating strength, with the difference between the two closest contracts for the global benchmark Brent trading at $1.50 a barrel in backwardation. In contrast, a barrel cost $1.14 a month ago.
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