Oil markets await US inventory data

The market continues its search for direction after the very brief rally in oil prices, triggered by the latest crisis in the Middle East, left it directionless.

November delivery US WTI crude oil rose 0.3% to $86.20. It had closed down 0.5% on Tuesday.

The most active December contract for UK-based Brent crude oil traded up 0.4% at $87.96. It finished Tuesday's session with a 0.6% decline.

Markets were on red alert yesterday due to fears that the conflict, ignited by the Palestinian militant group Hamas's attacks on Gaza and Israeli targets on Saturday, would spread politically and economically. Both WTI and Brent rose slightly over 4%.

However, 24 hours later, global markets calmed down significantly amid a risk-on sentiment that pushed stocks on Wall Street higher. Meanwhile, crude oil prices fell as investors paused the rally to better assess the direct impact of the conflict.

In particular, investors noted that there is no reliable estimate of how much oil produced, traded, or shipped out of the Middle East might be stranded due to the recent tensions in the region. Another unanswered question was whether Iran had in any way provoked or supported the attack on Israel.

Today, the US State Department stated that Iran likely knew Hamas was planning operations against Israel, but did not have information regarding the exact timing or scope. This did not mean that the Biden administration was making targeting Iran a priority, even while extending a helping hand to Israel. According to analysts, this situation signaled a decline for oil prices.

Washington has turned a blind eye to Iran's increasing oil exports by bypassing American sanctions since late 2022. Washington's priority was to maintain an informal, peaceful relationship with Tehran to ensure oil supply to the markets to offset OPEC+ production cuts.

As a result, Iran's crude oil production is estimated to have increased by approximately 700,000 barrels per day this year. This oil is the second-largest source of additional supply in 2023, following US shale oil.

ALL EYES ON FED MINUTES AND US OIL INVENTORY DATA

Nevertheless, if the minutes of the Fed's September policy meeting (to be released during the US session) show that central bank officials are leaning toward pausing interest rate hikes once again in November, oil could see further upward movement later in the day.

Minneapolis Fed President Neil Kashkaristated that further interest rate hikes might not be necessary to bring inflation under control, as the sell-off in the bond market could do the central bank's job of curbing rising prices despite a strong labor market and wage growth.

Atlanta Fed President Raphael Bostic meanwhile, said that US monetary policy is sufficiently restrictive at this point and that no further rate hikes are needed.

Market participants will also be monitoring the weekly US oil inventory datato be released by the API (American Petroleum Institute) after the market close.

The API will release a snapshot of US crude oil, gasoline, and distillate closing balances for the week ending October 6. These figures serve as a precursor to the official inventory data to be released tomorrow by the US Energy Information Administration (EIA).

Analysts tracked by Investing.com expect the EIA to report a decrease of 0.37 million barrels in crude oil inventories for last week, compared to the 2.224 million barrel decline reported for the week ending September 29.

GOLD EYES WEEKLY HIGH

Gold prices hovered near a more than one-week high as the dollar retreated following comments from Federal Reserve officials.

Spot gold prices fell 0.03% to trade at $1,860.24 per ounce. US gold futures maintained their level at $1,873.90.