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ANS treads mid $70s
Huge US crude inventory build offsets Middle East supply concerns
Steve Sutherlin Petroleum News
North Slope crude dropped by 80 cents Oct. 9, closing a nickel into the upper $70s at $75.05 per barrel. West Texas intermediate shed 33 cents to close at $73.24 and Brent dropped 60 cents to close at $76.58.
Prices headed down as the U.S. Energy Information Administration reported a massive 5.8 million barrel increase in the nation's commercial crude inventories, which -- together with China demand worries -- offset concerns about Gulf of Mexico hurricane disruption and escalating tensions in the Middle East.
(See chart in the online issue PDF)
The average analyst expectation in a survey conducted by S&P Global Commodity Insights was an increase of 1.4 million barrels, compared with analysts' expectations in a Reuters poll of a 2 million barrel rise.
Crude inventories for the week ended Oct. 4 stood at 422.7 million barrels, 4% below the five-year average for the time of year, the EIA said.
Total motor gasoline inventories were drawn down 6.3 million barrels for the period and distillate fuel inventories decreased by 3.1 million barrels.
Oct. 9 price reductions came atop losses the previous day on reports that Hezbollah leaders were open to discussing cease-fire terms with Israel.
ANS fell 50 cents Oct. 8 to close at $75.85, as WTI shed 81 cents to close at $73.57 and Brent shed 87 cents to close at $77.18.
ANS plummeted $2.00 Oct. 4 to close at $76.35, while WTI rose 67 cents to close at $74.38 and Brent rose 43 cents to close at $78.05.
Prices saw a hefty updraft Oct. 3 as Israel considered a military response to a barrage of rockets Iran fired on Israel Oct. 1. ANS leapt $2.86 to close at $78.34, WTI lofted $3.61 to close at $73.71 and Brent soared $3.72 to close at $77.62.
From Wednesday to Wednesday, ANS shed 44 cents from its Oct. 2 close of $75.49 to its close of $75.05 Oct. 9.
On Oct. 9, ANS traded at a $1.81 premium over WTI, and at a $1.53 discount to Brent.
Hurricane may impact demand Hurricane Milton, having spared significant petroleum production assets in the Gulf of Mexico, is shifting to a potential drag on demand rather than a threat to supply.
Milton may hit energy demand in the weeks ahead, Tariq Zahir, managing member at Tyche Capital Advisors told MarketWatch for an Oct. 9 article.
No new China stimulus, and the prospect of the Organization of the Petroleum Exporting Countries boosting crude production are also bearish for oil, he said.
The main bullish factor for oil is Israel's response to the Oct. 1 Iran missile attack, Zahir said, adding that an attack on oil fields in Iran may spike prices.
Iran may try to impact the flow of goods through the Strait of Hormuz, if the conflict escalates, he said.
"The risk to the upside likely outweighs the risks to the downside in the days and weeks ahead," said Zahir.
Hurricane Milton doesn't appear to have a meaningful impact on production in the Gulf of Mexico, Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.
Demand has "likely been front-loaded here, with all of those in the Southeast evacuating before seeking shelter from Milton's landfall," Richey said. The "net impact of Milton is likely going to be reduced consumer demand as residents shelter in place and are not likely to be commuting or going to school for the rest of the week, or potentially longer."
Elevated supply risk in Middle East The risk of crude oil supply disruption arising from Middle East conflict is spiking, Simon Flowers, Wood Mackenzie chairman, and chief analyst said in the WoodMac publication, The Edge Oct. 3.
"Heightened geopolitical tension in the Middle East has become a disturbingly recurrent theme this century, just as it did in the last," Flowers said. "The locus of conflict might shift each time and so, too, the implications for energy markets."
Oil, gas and LNG markets seem largely unfazed by recent escalation in Lebanon and Iran's direct engagement with Israel, he said.
Risks to supply and prices are potentially large, depending on whether infrastructure is targeted.
"We expect security around key production and processing facilities and ports to be redoubled," said Ann-Louise Hittle, WoodMac head of macro oils, and Massimo Di-Odoardo, head of global gas and LNG research. "To reassure the market, producing countries in the region will seek to ensure production, refining and exports are maintained."
Among large producers, Iran -- which produces 3.2 million barrels per day of crude oil, exporting some 1.4 million bpd -- is the most vulnerable to disruption, the analysts said. In a wider or prolonged conflict, Iraq -- 4.2 million bpd crude and 3.3 million bpd of crude exports -- could also be at risk since it is home to Iran-based proxy groups.
Iranian retaliation on U.S. energy operations in the region adds to the potential risks to supply disruption, the analysts said.
If a supply outage were to occur, WoodMac estimates OPEC has some 6 million bpd of spare capacity readily available should it be required.
WoodMac analysis shows a tight balance between global supply and demand for the rest of 2024.
"What's puzzling is why prices aren't firmer, especially given that there's even more justification for a strong geopolitical premium," the analysts said.
"It looks as if oil and gas traders are betting that supply disruptions can be avoided, in spite of the escalation of the conflict," the analysts said. "But if military activity between Israel and Iran intensifies, the upside could be substantial."
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