Oil prices hovered near recent peaks on Wednesday, with Brent crude holding above $86 per barrel following a minor decline of 0.4% the previous day. West Texas Intermediate (WTI) was stable around $83 per barrel. The American Petroleum Institute’s report indicating a significant 9.2 million barrel decrease in crude inventories last week, if confirmed by official data later today, would mark the largest weekly drawdown since January.
Throughout the year, crude oil has maintained strong gains, supported by a positive sentiment in equity markets, exemplified by the record-setting performance of the S&P 500. Concerns over an active hurricane season have also bolstered prices. Reflecting this optimism, call options in the options markets are trading at a premium compared to puts, a rare occurrence.
Geopolitical tensions remain a key factor influencing oil markets. Investor attention is focused on upcoming elections in France and the UK, while in the Middle East, escalations between Israel and Hezbollah have raised fears of broader regional conflict. The Israel Defense Forces’ recent warnings to evacuate parts of Gaza underscore the precarious situation.
Vivek Dhar, an analyst at Commonwealth Bank of Australia, highlighted the potential risks associated with geopolitical developments: “The primary concern for oil markets is the possibility of an Israel-Hezbollah conflict escalating into a wider regional confrontation. Direct Iranian involvement could further jeopardize Iran’s oil supply and infrastructure.”
The combination of inventory dynamics, geopolitical uncertainties, and market optimism continues to shape the trajectory of global oil prices, influencing decisions across financial and strategic sectors worldwide.
