Oil prices end at 2-week high as Israel weighs response to Iran missile attack

By Myra P. Saefong and William Watts

EIA reports a gain in weekly U.S. crude supplies

Oil futures settled Wednesday at their highest in two weeks, modestly extending a rally from a day earlier, as investors awaited Israel's response to a massive missile barrage by Iran on Tuesday which stoked fears of a wider conflict that could impede flows of crude from the Middle East.

Prices, however, pared much of their earlier gains as those worries appeared to fade a bit, while the U.S. government reported a weekly climb in domestic crude stockpiles for the first time in three weeks.

Price moves

West Texas Intermediate crude CL.1 for November delivery CL00 CLX24 rose 27 cents, or 0.4%, to settle at $70.10 a barrel on the New York Mercantile Exchange.December Brent crude BRN00 BRNZ24, the global benchmark, gained 34 cents, or 0.5%, to $73.90 a barrel on ICE Futures Europe. Brent and WTI both settled at their highest since Sept. 24, according to Dow Jones Market Data.November gasoline RBX24 added 1% to $1.99 a gallon, while November heating oil HOX24 rose 0.4% to $2.18 a gallon.Natural gas for November delivery NGX24 settled at $2.89 per million British thermal units, down 0.4%.

Market drivers

"It is all about Middle East conflict now when it comes to oil prices," said Fawad Razaqzada, market analyst at City Index and FOREX.com. "The extent of Israel's potential response to Iran will influence how much further geopolitical risk markets are likely to factor in."

"Crude oil could rise another $5 in the next few days if we see further escalation in the conflict," he said in market commentary.

Iran, a member of the Organization of the Petroleum Exporting Countries, on Monday fired around 180 missiles at Israel in retaliation for a series of blows against its Lebanon-based proxy Hezbollah. Israel also began a ground incursion in southern Lebanon aimed at Hezbollah earlier Tuesday.

Israel Prime Minister Benjamin Netanyahu vowed late Tuesday to retaliate against Iran, which he said "made a big mistake tonight and it will pay for it."

Most of the missiles were downed by Israel. A similar but smaller attack by Iran in April was followed by a limited Israeli response, leaving no lasting effect on oil prices.

'Evaluating the situation purely from the perspective of crude-market fundamentals, the risk to supply is still somewhat contained.'Robbie Fraser, Schneider Electric

"Evaluating the situation purely from the perspective of crude-market fundamentals, the risk to supply is still somewhat contained," said Robbie Fraser, associate director of global research and analytics at Schneider Electric. "The principal risk is via the potential for stricter U.S.-led sanctions enforcement against Iranian crude exports, which could impact just under 2% of global supply."

OPEC+, which is comprised of the Organization of the Petroleum Exporting Countries and its allies, is also planning to begin unwinding voluntary production cuts in December after delaying plans to boost output this month due to lower prices, he said. "If Iranian crude exports were reduced, it would likely reinforce OPEC+'s plans to boost output, limiting some of the broader upside risk."

Still, analysts at Sevens Report Research said their Wednesday newsletter that an Israeli attack on any nuclear facilities or oil infrastructure would "meet the criteria for the bullish $5 (minimum) oil-market rally, while a muted response or de-escalation would likely see yesterday's trough-to-peak fear bid of roughly $6 [per] barrel come unwound." That would lead WTI back to a range in the mid- to high-$60s per barrel, they said.

See: What Iran's missile attack on Israel means for oil prices

Oil initially rose last October following the Hamas attack on southern Israel, but worries over tepid demand from China and increased output from producers outside of OPEC and its allies have weighed on crude prices overall. WTI is down more than 18% based on front-month contracts over the past 12 months.

Meanwhile, OPEC refuted a report from the Wall Street Journal, which said Saudi Arabia's oil minister Prince Abdulaziz bin Salman reportedly warned fellow producers in a conference call that oil could drop to $50 a barrel if they don't comply with agreed production cuts.

OPEC said on X that the article falsely reported that a conference call took place. "The OPEC Secretariat categorically refutes the claims made within the story as wholly inaccurate and misleading."

Ministers from OPEC+ met Wednesday, and the group made it clear that it's important for its members to make up for past overproduction. It said Iraq, Kazakhstan and Russia confirmed that they have "achieved full conformity and compensation" for overproduction based on the schedules submitted for September.

OPEC+ is slated to unwind around 180,000 barrels a day of output cuts beginning in December.

Supply data

Oil futures started to pare their gains shortly after the Energy Information Administration on Wednesday reported that weekly U.S. crude supplies rose after back-to-back weekly declines.

The EIA said U.S. commercial crude inventories climbed by 3.9 million barrels for the week ended Sept. 27.

On average, analysts had expected no change to crude supplies, according to a survey conducted by S&P Global Commodity Insights. Late Tuesday, the American Petroleum Institute reported a crude-inventory fall of 1.46 million barrels, according to a source citing the data.

The EIA report also showed a weekly supply increase of 1.1 million barrels for gasoline, while distillate inventories fell 1.3 million barrels. The S&P Global Commodity Insights survey showed expectations for supply decreases of 400,000 barrels for gasoline and 1.7 million barrels for distillates.

U.S. oil production rose by 100,000 barrels to 13.3 million barrels per day in the latest week, the EIA said, while crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 900,000 barrels to 23.7 million barrels.

"With even Cushing inventories building, this week's EIA report is leaning bearish, in stark contrast to the current geopolitical backdrop driving prices higher," said Matt Smith, head U.S. analyst at Kpler.

Meanwhile, demand for gasoline declined, the EIA said. Total motor gasoline supplied, a proxy for demand, was at 8.521 million barrels per day in the latest week, versus 9.205 million bpd from a week earlier.

-Myra P. Saefong -William Watts

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10-02-24 1536ET

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