Oil Extends Losses On Demand Fixations, But Iran Threat Will Soon Return To Fore: Analyst

Meanwhile, hopes intensify for September interest rate cuts: File Image/Pixabay

An unexpected increase in U.S. crude stocks compounded nascent concerns among traders about demand health on Wednesday, resulting in oil prices settling almost 2 percent lower.

After the Energy Information Administration disclosed that U.S. crude inventories rose by 1.4 million barrels compared with estimates for a 2.2 million barrel drop, West Texas Intermediate settled down $1.37, or 1.8 percent lower, to $76.98 per barrel.

Brent settled down 93 cents, or 1.1 percent lower, at $79.76 per barrel.

As with past inventory calculations, the EIA report was mixed in that gasoline and distillate inventories fell more than expected, a sign of persistent demand during the summer driving season.

Despite the demand concerns, analysts on Wednesday were said to have been buoyed somewhat by reports of U.S. consumer prices rising in July and the annual increase in inflation dropping to below 3 percent for the first time since early 2021 – which boosted hopes that the Federal Reserve will cut interest rates in September.

Scott Anderson, chief economist at BMO Capital Markets, said, "Nothing….would keep the Fed from cutting in September, but market hopes for a bigger cut still seem like a long shot."

As for the other recent influencer in oil trading but relatively ignored this week, Brian Kessens, a managing director at Tortoise Capital Advisors, said, "Over the next couple of days, I expect geopolitical risk will probably return to the fore."

Indeed, Washington said that the probability of a direct attack on Israel by Iran has increased and could happen as soon as this week; meanwhile, a new round of cease-fire talks is scheduled to begin Thursday in Qatar.

This was accompanied by Helima Croft, head of global commodity strategy at RBC Capital Markets, stating in a note that "There is still a prevailing view in Washington that Iran does not want a regional war, preferring a grey-zone, proxy conflict."

In other oil news on Wednesday sure to further stoke bearish sentiment, data from Goldman Sachs revealed that global jet fuel demand through July this year averaged around 7.49 million barrels per day (bpd), a 500,000-bpd increase over the same period in 2023.

However, airlines warned this week and last that they fear a drop in spending on leisure travel, and Americans among other nationalities were said to be holding off on bookings due to uncertain economic outlook.