Oil Prices Fall Over 1% as Supply Risks Remain in Focus

Oil prices declined by more than 1% on Thursday as investors assessed supply risks from attacks on shipping near the Strait of Hormuz against US efforts to reduce petroleum transportation costs by potentially easing sanctions on certain oil-carrying vessels.

Brent crude futures fell $1.64, or 1.6%, to $104.42 a barrel by 0337 GMT. US West Texas Intermediate (WTI) crude futures dropped 98 cents, or 1%, to $94.11, reversing gains recorded during the previous session.

The decline came despite continuing concerns over maritime security and disruptions to oil shipments linked to the war involving Iran. Investors also weighed rising oil production and alternative shipping arrangements that have helped maintain supplies despite higher transportation costs and geopolitical uncertainty.

Strait of Hormuz Attacks Keep Oil Supply Risks in Focus

Oil markets remain sensitive to developments around the Strait of Hormuz, a critical shipping route for global energy supplies. Recent attacks on commercial vessels have heightened concerns about the safety of shipments and the potential for further disruptions.

WTI crude climbed to a three-week high during the previous session after Yemen’s Houthi movement attacked the headquarters of Saudi Aramco and Iran said it was deploying new tactics to target vessels in the strait.

Maritime officials reported on Wednesday that a container ship and a dry bulk carrier had sunk near the waterway within the previous 24 hours after being struck by projectiles in separate incidents.

Attacks around the strait have increased over the past 10 days, with Iran saying it is intensifying strikes in response to a US blockade of its ports and tougher sanctions introduced last month.

The developments have raised concerns about the potential for additional supply disruptions, particularly if shipping companies become increasingly reluctant to operate in the region or face higher insurance and freight costs.

US Considers Easing Sanctions on Oil-Carrying Vessels

The Trump administration is considering easing sanctions on certain vessels associated with the so-called shadow fleet to help reduce petroleum shipping costs and ease pressure on oil prices, a US official said on Wednesday.

These vessels have transported crude oil and petroleum products from countries including Russia, Iran and Venezuela. The proposed approach could allow what the official described as “legal oil” to move on vessels that were previously sanctioned.

The discussions come as the war involving Iran has disrupted shipping routes and pushed freight costs to record highs. By potentially allowing more vessels to transport petroleum products, Washington hopes to ease logistical constraints and improve the movement of energy supplies.

However, the proposal remains under consideration, and its potential impact on global oil prices will depend on the details of any policy changes and how quickly additional shipping capacity becomes available.

Higher Oil Production Helps Limit Price Increases

Increased crude oil production from Russia and the Middle East has helped limit upward pressure on prices despite the disruption to shipping.

Russia’s crude oil production rose by 65,000 barrels per day in September to 8.43 million barrels per day, according to the International Energy Agency (IEA). However, output remained 870,000 barrels per day below the level recorded a year earlier.

The IEA also reported that crude oil exports from producers in the Middle East Gulf increased by 4.4 million barrels per day in September, reaching approximately 75% of prewar levels.

The recovery in exports suggests that producers and traders have found ways to redirect shipments and maintain some supply flows despite the ongoing conflict and increased logistical challenges.

Priyanka Sachdeva, head of market insights at Phillip Nova, said oil continued to reach buyers through alternative routes and logistical arrangements, even though there was little concrete evidence of an imminent peace agreement.

Sachdeva said these arrangements had helped prevent a more severe supply shock, but they came at a higher cost and left global oil flows vulnerable to further disruptions.

US Crude Inventories Record Larger-Than-Expected Draw

US crude oil and distillate inventories declined last week, while gasoline stocks increased, according to data from the American Petroleum Institute cited by market sources on Wednesday.

Crude oil inventories fell by 11.1 million barrels during the week ended October 9. The decline was substantially larger than analysts surveyed by Reuters had expected, potentially indicating stronger demand, lower imports or changes in refinery and supply flows.

Despite the substantial inventory reduction, oil prices showed little positive reaction. The muted response suggested that traders remained cautious about pushing prices higher while geopolitical developments and the global supply outlook remained uncertain.

Haitong Futures said in a note on Thursday that oil prices had barely reacted to the sharp inventory decline. The firm argued that the failure of prices to rise following supportive inventory data indicated that investors were reluctant to chase the market higher at current levels.

The US Energy Information Administration was scheduled to release its official inventory figures at 12 p.m. Eastern Daylight Time (1600 GMT) on Thursday. The release had been delayed by one day following the Columbus Day holiday on Monday.

Oil Market Outlook Remains Uncertain

The outlook for Crude Oil Prices continues to depend on the balance between geopolitical supply risks and efforts to maintain production and shipping flows.

Further attacks near the Strait of Hormuz could disrupt shipments, increase freight costs and push prices higher. Conversely, additional production, alternative transportation arrangements and any easing of shipping restrictions could help reduce pressure on global supplies.

Investors are also monitoring US inventory data for evidence of changes in domestic crude, gasoline and distillate supplies. The larger-than-expected decline in crude stocks has so far failed to provide a sustained boost to prices, reflecting caution among market participants.

With geopolitical tensions continuing and the potential impact of US Sanctions changes still uncertain, oil prices are likely to remain sensitive to developments affecting supply, shipping security and global energy demand.