Oil prices remained stable on Monday as the conflict between Israel and Gaza continued to pose a threat to the stability of the Middle East, a major oil-producing region. Brent crude, the global benchmark, traded near $92 a barrel, while West Texas Intermediate (WTI), the US marker, hovered around $88 a barrel.
Israel Holds Off Ground Invasion of Gaza
Israel delayed its planned ground invasion of Gaza on Sunday, amid diplomatic efforts from the US and European countries to secure the release of hostages held by Hamas, the militant group that controls the coastal enclave. Israel said it had intercepted a drone and anti-tank missiles fired from Lebanon, where the Iran-backed Hezbollah group operates. Israel also accused Iran of supplying weapons and funds to Hamas and other Palestinian factions.
The conflict, which erupted on Oct. 7 after Hamas launched rockets at Israel, has killed more than 200 people, mostly Palestinians, and injured thousands more. The UN has warned of a humanitarian crisis in Gaza, where more than 2 million people live under a blockade imposed by Israel and Egypt. Israel has carried out hundreds of airstrikes on Gaza, targeting Hamas leaders, tunnels, rocket launchers and other infrastructure.
Oil markets have been closely watching the developments in the region, which accounts for about a third of the world’s crude supply. There are concerns that the conflict could escalate into a wider war involving Iran, Saudi Arabia and other regional powers, or draw in the US, which has increased its military presence in the area. However, so far there has been no direct impact on oil production or exports from the Middle East.
US Crude Stockpiles Rise as Demand Remains Weak
Oil prices were also pressured by the latest data from the US Energy Information Administration (EIA), which showed that US crude inventories rose by 10.2 million barrels last week, the biggest increase since February. The rise was attributed to lower refinery runs and higher imports, as well as reduced demand for gasoline and distillates.
Gasoline demand in the US, the world’s largest oil consumer, remains below pre-pandemic levels, as the Delta variant of the coronavirus continues to weigh on travel and economic activity. Gasoline futures settled at about $2.17 a gallon on Monday, the lowest since December 2022. The EIA expects US gasoline consumption to average 8.6 million barrels per day (bpd) in 2023, down from 9.3 million bpd in 2019.
The weak demand outlook has offset some of the bullish factors that have supported oil prices in recent months, such as the recovery of global oil demand from China and other emerging markets, the supply disruptions caused by hurricanes in the Gulf of Mexico, and the ongoing production cuts by OPEC and its allies.
Oil Prices Outlook
Analysts expect oil prices to remain volatile in the near term, as the market balances the geopolitical risks in the Middle East with the demand uncertainties in the US and other major economies. The Organization of Petroleum Exporting Countries (OPEC) and its partners, known as OPEC+, are scheduled to meet on Nov. 4 to review their output policy for December and beyond.
OPEC+ has been gradually increasing its production since May, after slashing it by a record 10 million bpd last year in response to the pandemic-induced collapse in demand. The group plans to add another 400,000 bpd in November, bringing its total output to about 35.6 million bpd, still below its pre-pandemic level of about 40 million bpd.
OPEC+ has said it will monitor market conditions and adjust its policy accordingly, but some analysts have suggested that it may need to pause or reverse its output increases if demand falters or supply surges from other sources. The US shale industry, for instance, has been showing signs of recovery after a sharp decline last year. The EIA expects US crude production to average 11.5 million bpd in 2023, up from 11.1 million bpd in 2022.