In a notable market development, oil prices saw a decline on Thursday, reversing the gains recorded in the previous session. This shift in prices is attributed to two key geopolitical factors: OPEC’s stance on Iran’s appeal for an oil embargo on Israel and the United States’ plan to ease sanctions on Venezuela, facilitating the flow of more oil into the global market.
Brent futures for December witnessed a reduction of 74 cents, settling at $90.76 per barrel. Simultaneously, U.S. West Texas Intermediate (WTI) futures for November, set to expire on Friday, experienced a decrease of 57 cents, trading at $87.75 per barrel. The more active December WTI showed a decline of 51 cents, reaching $86.76 per barrel at 0047 GMT.
The backdrop to this market shift involves Iran’s call for an oil embargo on Israel due to the conflict in Gaza. This concern, coupled with the United States reporting a more significant than anticipated inventory draw, led to a 2% climb in oil prices during the previous session. These developments raised concerns about potential disruptions in global oil supplies.
However, recent reports suggest that the Organization of the Petroleum Exporting Countries (OPEC) is not currently planning any immediate action in response to Iran’s appeal. This revelation eases apprehensions regarding possible disruptions in oil flows. As RBC Capital Markets pointed out in a note, while OPEC remains noncommittal to Iran’s call for an oil boycott on Israel, oil is expected to play a significant role in the ongoing conflict through various avenues.
Israel, a substantial oil importer, receives approximately 250,000 barrels per day (bpd) from countries like Kazakhstan, Azerbaijan, Iraq, and African nations. Analysts at Citi indicated that the probability of an embargo from Kazakhstan and Azerbaijan, both strong allies of Israel, is low.
The United States has issued a six-month license permitting transactions within Venezuela’s energy sector, given the recent agreement between the Venezuelan government and the country’s political opposition to ensure fair elections in 2024. Venezuela, as an OPEC member, has the potential to contribute to a reduction in global oil prices, which have been on the rise due to the Israel-Hamas conflict, sanctions on Russia, and OPEC+ decisions to cut output. However, Venezuela requires substantial investments to boost production, particularly after years of sanctions.
Notably, U.S. crude oil and fuel inventories saw a decline last week, primarily driven by increased demand for diesel and heating oil. Data from the Energy Information Administration (EIA) indicated a 3.2 million-barrel decrease in distillate fuel stockpiles to 113.8 million barrels during the week ending October 13. Crude inventories also experienced a decrease of 4.5 million barrels, totaling 419.7 million barrels, while gasoline stocks reduced by 2.4 million barrels to 223.3 million barrels.
Furthermore, supply may become even more constrained as Russia’s oil exports via western sea ports are expected to decline by approximately 300,000 bpd in November. This reduction is anticipated as domestic refineries are projected to increase operations following the conclusion of seasonal maintenance, according to sources cited by Reuters.