Crude oil prices rose modestly on Wednesday, driven by a significant drop in U.S. crude inventories and mounting concerns over the potential widening of the Israel-Gaza conflict, which could impact global oil supplies.
Brent crude oil, against which Nigerian oil is priced, increased by 32 cents, or 0.4% to settle at $81.01 per barrel, while U.S. West Texas Intermediate (WTI) crude rose by 33 cents, or 0.4% to $78.68 per barrel by 0820 GMT.
The uptick in prices followed a report from the American Petroleum Institute (API) showing a substantial drawdown in U.S. crude inventories by 5.2 million barrels last week, far exceeding the forecasted decline of 2 million barrels.
The data has been interpreted as a sign that oil demand in the U.S. remains robust, despite broader economic concerns.
“API’s report indicating a larger-than-expected reduction in U.S. crude stocks suggests strong demand is still present in the market,” said Danish Lim, an investment analyst at Phillip Nova. “This, combined with the geopolitical tensions in the Middle East, is contributing to the current upward pressure on oil prices.”
In the Middle East, tensions have escalated following the killing of a Hamas leader, for which Iran has vowed severe retaliation.
While Israel has neither confirmed nor denied involvement in the assassination, the country is engaged in active military operations in Gaza after the Hamas attack on Israel in October.
The situation has prompted the U.S. to deploy additional warships and a submarine to the region, signaling the possibility of further conflict.
Vivek Dhar, an analyst at Commonwealth Bank of Australia, noted that the extent of Iran’s reprisal and Israel’s response could be crucial in determining whether the conflict remains localized or broadens into a regional war.
“The immediate market concern will be potential attacks on Iran’s oil supply and infrastructure,” Dhar said. “Iran contributes about 3%-4% of global oil demand, and any disruption could significantly impact supply.”
ANZ Research warned that a broader conflict in the Middle East could threaten key oil choke points in the region, potentially exposing over 20 million barrels per day of oil to risks of disruption.
However, gains in oil prices were somewhat capped by the International Energy Agency (IEA)’s recent decision to trim its 2025 estimate for oil demand growth.
The IEA cited a weakened Chinese economy as a major factor contributing to lower global oil consumption projections.
As the market continues to monitor the evolving situation in the Middle East and digest the implications of the U.S. stockpile data, traders and analysts are bracing for further volatility in oil prices in the coming weeks.
Official U.S. government data from the Energy Information Administration (EIA) is expected to provide further insights into the state of the market later on Wednesday.
