Oil prices rose sharply on Wednesday due to increased tensions in the Middle East. A blast at a Gaza hospital caused hundreds of deaths and raised concerns about potential oil supply disruptions from the region. Brent crude futures went up 2% to $91.65 a barrel, while West Texas Intermediate crude (WTI) futures increased 2.2% to $88.57 a barrel.
Risk premiums were factored in by the markets due to the explosion, and Jordan cancelled a summit it was supposed to host with U.S. President Joe Biden and Egyptian and Palestinian leaders. Experts believe that the cancellation reduces the likelihood of a diplomatic solution to the Israel Hamas conflict.
Concerns about a threatened Israeli ground offensive in Gaza have also made markets nervous. Analyst Vivek Dhar from Commonwealth Bank of Australia said that “a long occupation looms as the scenario that pushes Brent oil futures above $US100/bbl because it raises the risk that the Israel Hamas conflict expands and potentially draws in Iran directly.”
Biden is set to visit Israel on Wednesday to show support for the country in its war with Islamist militant group Hamas. The White House said he will make clear he does not want the conflict to expand.
In addition, U.S. crude stocks fell by about 4.4 million barrels in the week ended Oct. 13, according to market sources citing American Petroleum Institute figures on Tuesday. Official U.S. government data is due later on Wednesday.
On the demand side, official data from China showed that China’s economy grew faster than expected in the third quarter, suggesting a recent flurry of policy measures is helping to bolster a tentative recovery. China’s oil refinery throughput in September also hit a record daily rate, up 12% from a year earlier as refiners increased run rates to cater for strong demand for transport fuel over the Golden Week holiday and improving manufacturing.
However, analysts sounded cautious on China’s economic growth as the real estate sector remains a drag. Moody’s Analytics economist Harry Murphy Cruise said, “The September data likely guarantee that China will hit its ‘around 5%’ growth target this year. That said, it will struggle to better it. The economic recovery is still in its infancy.”
Meanwhile, U.S. retail sales increased more than expected in September, spurring expectations of another interest rate hike by the Federal Reserve by year-end. Interest rate hikes to curb inflation can slow economic growth and reduce oil demand.
Venezuela’s government and its political opposition on Tuesday agreed to electoral guarantees for 2024 presidential elections, paving the way for possible U.S. sanctions relief that could eventually boost oil supplies.