Oil rose in another volatile session as a deal expected to bring more Venezuelan crude to the market in the months ahead did little to assuage immediate concerns that the conflict in the Middle East will reduce supplies.
(Bloomberg) — Oil rose in another volatile session as a deal expected to bring more Venezuelan crude to the market in the months ahead did little to assuage immediate concerns that the conflict in the Middle East will reduce supplies.
West Texas Intermediate settled above $89 a barrel after swinging in a nearly $3 range on Thursday. Analysts estimate that the US’s suspension of some restrictions on Venezuela, in return for plans for freer elections in the country, may enable the South American nation to pump 200,000 more barrels a day, a roughly 25% jump in output.
Still, traders are assessing how much and how quickly more Venezuelan oil could help markets, with a report saying OPEC+ doesn’t expect the development to require any change in its policy. Plunging inventories at Cushing, Oklahoma, now at a nine-year low, also are keeping traders on edge as the November WTI contract approaches its Friday expiry. That added to volatility in prices into settlement.
Reports of attacks related to the Israel-Hamas war — including a drone strike on an Iraqi base housing US forces — also contributed to choppiness.
Venezuelan crude is only a “band-aid solution” for the tightening oil market, said Ed Moya, senior markets analyst at Oanda.
“The risks of a wider war in the Middle East will likely lead to extensive efforts by the West to cover any shortfalls or disruptions of crude outflows,” Moya said. “Venezuela won’t be able to ramp up output to meaningful levels, so whatever oil-price relief we are seeing should be temporary.”
Oil’s afternoon rally was also bolstered by a broader risk-on sentiment. Financial markets interpreted Chairman Jerome Powell’s comments at the Economic Club of New York to say that the Federal Reserve is finished hiking rates, a more dovish stance than earlier communicated, Vital Knowledge found Adam Crisafulli wrote in a note to clients.
Worries of elevated interest rates and the state of the global economy had suppressed crude prices before Hamas’s attack on Israel.
US President Joe Biden plans an Oval Office address on the Middle East crisis on Thursday amid a drive to prevent the conflict from escalating. The speech follows a brief midweek visit to Israel to show solidarity following the attack by Hamas.
Oil has been volatile since the Oct. 7 assault on Israel by Hamas, which is designated as a terrorist organization by the US and European Union. An expected ground offensive by Israel into Gaza has raised concerns of a more aggressive response from Iranian-backed Hezbollah in southern Lebanon, which could embroil wider regional powers. Worries that the conflict could affect fuel flows have countered the ongoing drag from higher interest rates around the world.
Iran has appealed for an oil embargo against Israel, but Citigroup Inc. said Israel’s main suppliers, including Kazakhstan and Azerbaijan, were unlikely to heed such a call.
Terminal users can click here for more on the Israel-Hamas War.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.