Oil prices drop, with supply concerns outweighing worries over Middle East

By William Watts

Oil futures kicked off October and the fourth quarter on a down note, feeling pressure from expectations for increased supply as traders continued to look past an escalation of tensions in the Middle East as Israel began operations in southern Lebanon in its latest offensive against Iran-backed Hezbollah.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 fell 85 cents, or 1.2%, to $67.32 a barrel on the New York Mercantile Exchange.December Brent crude BRN00 BRNZ24, the global benchmark, was down 80 cents, or 1.1%, at $70.90 a barrel on ICE Futures Europe.

Market drivers

Iran, which supports Hezbollah in Lebanon financially and militarily, has not so far mounted or indicated a retaliatory attack.

"It appears that Iran is not interested in a military confrontation with Israel at present. It is also consistent with this that there has not yet been a retaliatory attack in response to the killing of a high-ranking Hamas leader in Tehran at the end of July, for which Israel is being blamed," said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

"Provided that there is no direct confrontation between Iran and Israel, the impact on oil supply should remain limited. Consequently, there is no reason to add a larger risk premium to the oil price," he wrote, while noting the situation could change suddenly.

WTI and Brent posted losses for September and the third quarter, unable to overcome worries over the outlook for demand, struggling to find a footing even after a large rate cut by the U.S. Federal Reserve and the unveiling of a major stimulus program by China.

The prospect of a more direct confrontation between Israel and oil-producer Iran that could also involve the U.S. has also failed to bolster prices, analysts said. Meanwhile, the Organization of the Petroleum Exporting Countries and its allies - known together as OPEC+ - is expected to proceed with a plan to begin unwinding some production cuts in December. A meeting of OPEC+ officials on Wednesday isn't expected to produce any major announcements.

-William Watts

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10-01-24 0648ET

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