Oil prices slip as traders shake off prospect of wider Middle East conflict

By Myra P. Saefong and William Watts

WTI, Brent crude on track to tally a third straight monthly loss

Oil futures edged lower Monday, pressured by expectations that major oil producers will boost production in December - leading to a surplus of supplies as the outlook for demand remained uncertain.

Prices for U.S. and global oil were also on track to post a third monthly decline in a row, despite risks to global crude supplies in the oil-rich Middle East after a strike by Israel on Beirut killed the leader of Iran-backed Hezbollah.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 fell 9 cents, or 0.1%, to $68.09 a barrel on the New York Mercantile Exchange. As of Friday, front-month prices traded 7.3% lower for the month, according to Dow Jones Market Data.November Brent crude BRNX24, the global benchmark, was off 41 cents, or 0.6%, at $71.57 a barrel on ICE Futures Europe on the contract's expiration day. Prices traded 6.6% lower month to date as of Friday. The more actively traded December contract BRN00 BRNZ24 was down 16 cents, or 0.2%, at $71.38 a barrel.October gasoline RBV24 lost 0.5% to $1.9623 a gallon, while October heating oil HOV24 shed 0.2% to $2.1279 a gallon. The October contracts expire at the end of the trading session.Natural gas for November delivery NGX24 traded at $2.911 per million British thermal units, up 0.3%. As of Friday, prices were on track for a more than 36% monthly climb.

Market drivers

"Concerns over an oversupply of crude intensified after reports indicated that OPEC+ would proceed with its plans to increase production by 180,000 barrels per day starting in December," said Ernesto Di Giacomo, senior market analyst at XS.com.

"This decision could further widen the supply-demand imbalance, creating uncertainty among investors and putting downward pressure on prices in the short term," he said in emailed commentary.

Crude prices fell last week, with pressure tied in part to a Financial Times report, citing people familiar with Saudi officials' thinking, that said the kingdom was ready to throw in the towel on voluntary production cuts in December in a bid to reclaim market share.

However, the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, had already said in early September that they would start to gradually reinstate production cuts of 2.2 million barrels starting in December.

Still, Di Giacomo said risks of supply disruptions in the Middle East due to geopolitical conflicts in this critical crude-producing region are keeping investors "alert."

Hezbollah on Saturday confirmed that an Israeli strike had killed its leader Hassan Nasrallah, the latest and heaviest in a series of blows delivered by Israel against the Iranian proxy in recent weeks. A number of other top officials were also killed in the attack and subsequent strikes over the weekend. Israel also targeted a seaport and power plants in Yemen after Iran-backed Houthi rebels fired missiles toward Tel Aviv in recent days, news reports said.

"The oil market's response to developments in the Middle East over the weekend has been somewhat muted," Warren Peterson and Ewa Manthey, commodity strategists at ING, said in a note. "The market has become increasingly numb to the tension in the region given that, after almost a year of conflict, there has still been no impact on oil production."

The focus remains on Iran. If the country became involved in a more direct confrontation with Israel or the U.S., market attention would shift more decidedly toward the prospect of a supply disruption, the analysts wrote.

At the same time, OPEC is sitting on a large amount of spare production capacity, they said, which also provides the market with some comfort.

OPEC+'s Joint Ministerial Monitoring Committee will meet on Wednesday and may offer some clues to production plans.

The committee is not expected to make any major strategic change at its meeting, but "there may be a discussion regarding Iraq and Kazakhstan who have been overproducing production quotas," the Kansas City energy team at StoneX, led by Alex Hodes, wrote in its Monday newsletter. "If cheating continues, there is a risk that Saudi Arabia ramps up its production faster than current plans, but these changes will all occur after December."

Associated Press contributed.

-Myra P. Saefong -William Watts

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

09-30-24 1030ET

Copyright (c) 2024 Dow Jones & Company, Inc.