October 19, 2023 (Investorideas.com Newswire) Crude oil prices continued their extended decline since yesterday morning. The spot prices of West Texas Intermediate (WTI) crude oil fell by 2.78%, reaching the level of $85.68 per barrel, and the spot prices of Brent crude oil also fell by 1.71% to $89.75 per barrel, at 10 am GMT.
These declines come after both crudes reached their highest levels in more than 15 days. These declines also came despite the prevailing state of uncertainty and fears of further supply restrictions, in light of the sudden and continuing escalation of military actions, whether in Eastern Europe or the Middle East.
While the markets are looking with great concern at what is happening in Europe, including the targeting of sea lines of communications and natural gas transportation, in addition to the targeting of a military airport inside Russia with a new type of weapon that was given to Ukraine by the United States. This may push the parties to the conflict to further escalation and mutual escalation, which may reinforce concerns about global energy supply chains.
As for the Middle East, I do not see any intention, whether from the parties of the conflict or from the influential countries outside the region, to expand the scope of the battles and make it extend beyond the usual borders. Although the scope of the ongoing battles is limited, they have actually fueled concerns about oil and natural gas supplies. We have witnessed the closure of Israel's Tamar natural gas field in the Mediterranean. Also, what happened in a hospital in the Gaza Strip, which led to the killing of hundreds of civilians at once, may contribute to creating more embarrassment for the international community to urge it to end the bloody conflict. I believe that the markets may actually realize this in the coming days unless we witness any serious unexpected developments.
It appears that concerns about supply restrictions have caused more withdrawals from US crude oil inventories, larger than expected, during the past week, amounting to about 4.5 million barrels, after an accumulation of more than 10 million barrels during the previous week. We also saw larger-than-expected drops of gasoline and distillates inventories, according to data provided by the Energy Information Administration (IEA).
On the demand side, the US economy continues to provide more positive signals about the soundness of market fundamentals, which may support demand for oil. This is whether through a series of economic numbers, the latest of which were stronger-than-expected retail sales and building permits, or through the third quarter earnings results of companies, which continue to exceed market expectations for the most part, as we saw during the past two quarters of this year.
This is also what we saw in the series of positive economic data that we witnessed across the euro zone countries this month. We have seen the return of positive institutional investor sentiment for the first time about the near future of the eurozone economy, with the first positive reading on the ZEW Economic Sentiment index since last April. While this sentiment was a continuation of a previous series of service or manufacturing purchasing managers’ numbers across the Eurozone countries, which showed the ability to recover and get closer, little by little, to returning to growth and stopping contraction.
However, these positive factors for the oil markets do not appear to be encouraging enough to support the markets' bullish sentiment. For example, the United States Oil Fund LP (USO), the largest exchange-traded fund (ETF) for US crude oil futures, recorded negative net flows of about $46 million during the period between the beginning of last week and the day before yesterday, in reference to some of the negative sentiment prevailing in the market after crude oil prices reached record levels this year.