Oil Dips And Headed For Monthly Loss As War, Economy Spook Traders

Meanwhile, the U.S. achieves record output volumes: File Image/Pixabay

A return to sentiment was said to influence Tuesday's crude trading to a degree, with euro zone inflation causing hope that interest rates would rise no further and resulting in modest gains for the commodity.

After it was disclosed that euro zone inflation fell to 2.9 percent from 4.3 percent in September (implying that the European Central Bank will be unlikely to hike rates), Brent for December delivery settled down 4 cents at $87.41 per barrel; West Texas Intermediate for December delivery settled down $1.29 at $81.02 per barrel.

Brent and WTI are on course to log their first monthly declines since May, due to growing concerns of a global economic slowdown.

This, combined with the Israel/Hamas war seemingly taking second place in analytical concerns, Dennis Kissler, senior vice president of trading at BOK Financial, said, "I think a lot of the war premium is coming out of the market, and investors are focused on true supply and demand."

Although Israel's prime minister Benjamin Netanyahu on Tuesday rejected calls for a cease fire, traders continued to be buoyed by the fact that no further escalation of hostilities – and therefore no impact on crude supply – was evident.

However, Fiona Cincotta, senior financial market analyst at City Index, warned that, "as the ground invasion intensifies, the risk of involvement from Iran rises, fueling tight supply concerns."

Other factors swaying crude traders in varying degrees on Tuesday included data from Asia showing that manufacturing in China fell into contraction, and BP stating that fuel retail margins are challenging because gasoline and diesel markets are oversupplied.

Also on Tuesday, the Energy Information Administration reported that U.S. field production of crude oil reached 404.6 million barrels during the month of August for an average of 13.05 million barrels per day, breaking the previous record set in July of 401.73 million barrels.

U.S. production is up by a total of 33 million barrels for the month compared to the same time last year.

As for trading moving forward, a U.S. central bank meeting ending on Wednesday was said to be a major influencer, with CME's Fedwatch tool poll showing that analysts expect interest rate hikes to remain on hold in that country.