Crude oil prices declined on Wednesday as traders weighed an unexpected buildup in U.S. energy inventories against ongoing geopolitical risks stemming from the conflict between the United States and Iran.
Brent crude futures for November delivery dropped 1.02% to $107.64 a barrel, while U.S. West Texas Intermediate (WTI) October futures fell 1.29% to $104.46 per barrel.
According to a Reuters report citing sources familiar with data from the American Petroleum Institute, U.S. crude inventories increased by 7.1 million barrels for the week ending September 11. This rise stood in sharp contrast to analyst expectations for a drawdown of approximately 1.6 million barrels. Gasoline and distillate stockpiles also saw increases last week.
Despite the surplus data, market attention remains fixed on the Middle East following an Iran-backed attack that forced the closure of Saudi Arabia’s critical East-West pipeline over the weekend. U.S. Energy Secretary Chris Wright described the shutdown as a brief interruption expected to last only a few days during an interview with CNBC on Tuesday. However, Andy Lipow, president of Lipow Oil Associates, expressed skepticism in a Monday note, suggesting that repair efforts could take months based on available imagery.
The financial burden of the conflict is also drawing scrutiny. A report released Tuesday by the Congressional Budget Office estimated that the U.S. war with Iran has cost the Pentagon $38.1 billion through August 1. The report warned that each additional month of fighting could incur another $2 billion to $3 billion in expenditures.
Joseph Dahrieh, managing director at brokerage Tickmill, noted that crude prices are likely to remain closely linked to security conditions along Gulf export routes and the timeline for repairing Saudi infrastructure. He added that any further disruption to maritime flows or a prolonged pipeline outage could tighten the physical market and push prices higher.
Uncertainty continues to loom over vessel traffic in the Strait of Hormuz, where numerous merchant ships remain anchored as Tehran has announced the strait will stay closed amid escalating tensions.
Can someone explain why oil drops when there’s a pipeline explosion? Supply shock should raise prices.
Good to see gas prices dipping, but that CBO report on war costs is chilling.