Oil settles lower for a third straight session, with supplies so far unaffected by Israel-Hamas war

Price action

• West Texas Intermediate crude for December delivery
  CL00,
  -2.45%

  CL.1,
  -2.45%
  fell $1.75, or nearly 2.1%, to settle at $83.74 a barrel on the New York Mercantile Exchange.

• December Brent crude
  BRN00,
  +0.06%

  BRNZ23,
  +0.08%,
  the global benchmark, lost $1.76, or 2%, to $88.07 a barrel on ICE Futures Europe.

• November gasoline  
  RBX23,
  -1.08%
  declined by 2.6% at $2.27 a gallon on Nymex, while November heating oil
  HOX23,
  +0.45%
   declined by 1.6% to $3.04 per gallon.

• November natural gas
  NGX23,
  +7.97%
  added 1.5% to $2.97 per million British thermal units after ending Monday with a 0.9% gain.

Market drivers

The latest release of Israeli hostages by Hamas helped assuage traders’ concerns about the potential for an escalating conflict that could disrupt oil supplies and send prices higher.

“There is some relief over the release of some Israeli hostages held by Hamas, although the concern that hostilities will escalate remains,” said David Morrison, senior market analyst at Trade Nation, in emailed commentary.

Ongoing hostage negotiations and the delay of Israel’s ground invasion “did technical damage to the oil charts,” said Phil Flynn, senior market analyst at The Price futures Group.

“On the one hand, the risk to supply is still there with the possibility of cracking down on Iran and its oil, but the imminent risk to oil supply has been put off as Israel is holding off its ground invasion to get more hostages being held by Hamas released,” he said in a daily report.

The “small bit of progress that they are seeing — regarding releasing hostages [and] the fact that Israel has not started its ground invasion — takes a lot of the war premium out of oil,” said Flynn. “Prices fell to hold key support yesterday as far as the 10-day moving average and the 20-day moving average and now look poised to go lower technically unless we get a headline.”

Traders also looked to the latest eurozone composite purchasing managers index data, which declined to 46.5 from 47.2 in September. It’s the latest evidence of a slowdown in manufacturing activity that could tamp down inflation and weigh on oil demand.

Traders now await the release of official inventory data from the U.S. Energy Information Administration on Wednesday.

Macquarie forecasts a supply climb of 1.1 million barrels in U.S. crude oil for the week ended Oct. 20, along with weekly inventory declines of 1.3 million barrels for gasoline and 3.3 million barrels for distillates.

Meanwhile, the International Energy Agency said in its World Energy Outlook report released Tuesday that global demand for all three fossil fuel sources — coal, oil and natural gas — is likely to peak before 2030.

The IEA is “discoursing new investments in fossil fuels even as the impact of the lack of investment based on their past predictions has put the world on the path of the biggest [oil] supply shortage in decades,” said Flynn.

He points out that in April, the IEA warned that further planned OPEC+ output cuts this year, together with China’s economic rebound, meant the world oil market could be undersupplied by up to 2 million barrels per day in the second half of 2023.