Oil Extends Losses As Concerns Ease About Hamas Conflict Causing Supply Shortages

Meanwhile, the U.S. reports a huge crude inventory build: File Image/Pixabay

Amid the escalating Israel/Hamas conflict, crude traders who in the previous session downplayed earlier concerns about supply disruptions on Wednesday extended their sentiments and caused an almost 3 percent drop in the commodity.

Brent fell $1.83, or 2.1 percent, to settle at $85.82 per barrel, while West Texas Intermediate fell $2.48, or 2.9 percent, to settle at $83.49.

Despite the growing sense of fortitude among investors, Mercuria predicted that oil prices would reach $100 per barrel if the situation in the Middle East escalated further.

The main reason for easing concerns stemmed from Saudi Arabia, which stated it was working with regional and international partners to prevent an escalation; still, trading overall remains extremely volatile, and Edward Moya, senior market analyst at OANDA, remarked that "The only thing that is becoming clear for energy traders is that the road for the global growth recovery is getting rockier."

Moya was reacting in part to news that Germany's government confirmed it expects the economy to contract by 0.4 percent this year because of persistently high inflation; also, producer prices increased more than expected in the U.S. in September due to higher costs for energy and food (although inflation pressures at the factory gate continued to abate).

Dennis Kissler, senior vice president for trading at BOK Financial Securities, pointed out that Wednesday's oil price drop was partly the result of a bearish technical move known as a gap fill, which was triggered when prices surged more than $3 on Monday on concerns about Middle East instability.

Kissler pointed out that such spikes often prompt corrective moves to fill the large break in prices before a new trend can be established.

In other oil related news on Wednesday, Washington said it would be willing to lift some oil and banking sanctions as the U.S. and Venezuela reportedly approach reaching an understanding that would bring limited economic relief in exchange for steps to ensure fair elections, according to people familiar with the matter.

Also on Wednesday, the American Petroleum Institute reported a huge build of 12.94 million barrels in U.S. crude inventories, compared to last week's 4.21 million barrel draw; gasoline inventories rose this week by 3.64 million barrels, in addition to the 3.94 million barrel build in the week prior.