Oil prices finish lower with concerns of an economic slowdown raising prospects for a supply surplus

A government report showing a second straight weekly rise in U.S. crude supplies also pressured oil prices, as traders continued to monitor developments around the Israel-Hamas war.

Price action

• West Texas Intermediate crude
  CL00,
  +2.32%
  for December delivery
  CL.1,
  +2.32%

  CLZ23,
  +2.32%
  fell 58 cents, or 0.7%, to settle at $80.44 a barrel on the New York Mercantile Exchange. It settled at the lowest since Aug. 28, according to Dow Jones Market Data.

• January Brent crude
  BRN00,
  +2.21%

  BRNF24,
  +2.21%,
  the global benchmark, declined by 39 cents, or 0.5%, to $84.63 a barrel on ICE Futures Europe.

• December gasoline
  RBZ23,
  +2.43%
  fell 1.4% to $2.19 a gallon, while December heating oil
  HOZ23,
  +2.11%
  added 2.8% to $2.96 a gallon.

• Natural gas for December delivery
  NGZ23,
  -1.12%
  settled at $3.49 per million British thermal units, down 2.3% after climbing almost 6.7% on Tuesday.

Market drivers

Oil prices dropped toward session lows shortly after the Federal Reserve released statement on monetary policy Wednesday.

The initial drop in oil upon the release of the Fed decision “seemed to be in reaction to the addition of the phrase ‘tighter financial conditions’ for households and businesses,” Tyler Richey, co-editor at Sevens Report Research told MarketWatch. The added wording “implies demand is likely to suffer in the near-to-medium term.”

Separately, U.S. data released Wednesday showed a closely watched index that measures U.S. manufacturing activity fell 2.3 points to 46.7 in October, the lowest levels since July, according to the Institute for Supply Management.

“With longer-term demand expectations fading with the latest string of disappointing global economic reports we received this week, there is growing concern the physical markets will tip into a surplus in the months or quarter ahead,” said Richey.

Meanwhile, commodity analysts at Goldman Sachs said in a Wednesday note that the market for crude will continue to tighten, and backed up their forecast for Brent to hit $100 a barrel by June.

They said that spare capacity, however, meant that Brent was unlikely to “sustainably overshoot” $105 a barrel in 2024, which is the top end of their expected $80-to-$105 a barrel range for OPEC sweet crude spot prices.

The market “may become very tight in a more distant future,” they said, but “productivity and oil-demand trends will be critical too.”

Also see: Natural-gas prices surge 22% in October as traders look to winter heating demand

WTI futures based on the front-month contract finished Tuesday at their lowest since Aug. 28, down 10.8% for the month, according to Dow Jones Market Data. Brent broke a streak of four straight monthly gains, falling 8.3% in October.

Read Israel-Hamas war has potential to fuel oil-price shock that can disrupt food security: World Bank

Investors have “shrugged off risks from the Middle East conflict and instead remained focused on fears of weaker global demand,” said Rob Haworth, senior investment strategist at U.S. Bank Asset Management.

Supply data

On Wednesday, the Energy Information Administration reported that U.S. commercial crude inventories climbed by 800,000 barrels for the week ended Oct. 27.

The increase was the second in a row reported by the government agency, and came in close to some market expectations.

On average, analysts polled by S&P Global Commodity Insights expected the report to show a rise of 870,000 barrels. Late Tuesday, the American Petroleum Institute, a trade group, reported a 1.3 million barrel rise in last week’s crude-oil inventories, according to a source citing data.

The EIA report revealed a supply increase of 100,000 barrels for gasoline, while distillate stockpiles declined by 800,000 barrels. Analysts forecast decreases of 1.3 million barrels for gasoline and 1.7 million barrels for distillates.

Crude stocks at the Cushing, Okla., Nymex delivery hub rose by 300,000 barrels for the week, the EIA said.