Oil prices inch higher after losing much of their war premium during a 3-session decline

Price action

• West Texas Intermediate crude for December delivery
  CL00,
  +1.46%

  CL.1,
  +1.46%
  climbed by 13 cents, or 0.1%, to $83.87 a barrel on the New York Mercantile Exchange.

• December Brent crude 
  BRNZ23,
  +1.84%,
  the international benchmark, added 67 cents, or 0.8%, to $88.74 a barrel on ICE Futures Europe. Both Brent and WTI crude on Tuesday posted a third consecutive session decline.

• November gasoline
  RBX23,
  +0.60%
  edged up by nearly 0.1% to $2.2704 a gallon on Nymex, while November heating oil
  HOX23,
  -0.12%
  was down 1.2% at $3.009 a gallon.

• November natural gas
  NGX23,
  +1.25%
  gained 0.9% to $2.997 per million British thermal units ahead of U.S. supply data due out Thursday.

Market Moves

“The Israel-Hamas conflict in the Middle East remains top of mind and the threat to the regions oil resources and infrastructure continue to warrant a fear bid in the oil market,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

However, “the lack of material escalation since the initial attacks by Hamas has seen some of that fear bid unwind as the conflict has been largely contained up to this point,” he said.

WTI crude futures, the U.S. benchmark, had settled at $82.79 a barrel the day before the Hamas attack on Israel on Oct. 7, and peaked at a settlement high above $89 a barrel late last week, according to FactSet data. U.S. benchmark prices have given up most of their gains seen since the start of the war.

Meanwhile, some of the bullishness surrounding the “prolonged and disciplined” output cuts by the Organization of the Petroleum Exporting Countries and their allies, together known as OPEC+, have been tempered by the meaningful rise in U.S. production in recent months, said Richey. A significant portion of those OPEC+ cuts are being offset by new barrels from the U.S., he said.

Disappointing data on European economic activity helped weigh on oil prices Tuesday, as did the release of more Hamas hostages and the delay of the expected Israeli ground invasion of Gaza.

“The crux of the matter is that there has been no interruption in the Middle East’s oil supply,” said Stephen Innes, managing partner at SPI Asset Management in market commentary.

Richey pointed out that during Wednesday’s session, oil futures briefly plunged to new session lows after preliminary news headline crossed the wires about Israel agreeing to delay a ground invasion of Gaza, but new reports then said the provided reason for the delay was that the Israeli military was awaiting the arrival of U.S. missile support.

All of that “suggests an invasion is still imminent — just not right at this moment,” said Richey.

Supply data

On Wednesday, the U.S. Energy Information Administration reported weekly increases in domestic crude and gasoline supplies, but distillate stocks declines.

U.S. commercial crude inventories climbed by 1.4 million barrels for the week ended Oct. 20, the EIA said.

Macquarie forecast a climb of 1.1 million barrels. Late Tuesday, the American Petroleum Institute reported a 2.7 million-barrel weekly decline in U.S. crude supplies, according to sources citing the data.

The EIA report also revealed a supply increase of 200,000 barrels for gasoline, while distillate stockpiles declined by 1.7 million barrels. Macquarie forecast inventory decreases of 1.3 million barrels for gasoline and 3.3 million barrels for distillates.

An implied measure of consumer gasoline demand, know as total motor gasoline supplied, was “largely steady with its smoother four-week moving average rising to a more-than-one-month-high,” said Sevens Report’s Richey. “That firming demand metric amid an unexpected drop in refinery runs last week is likely to result in some near-term pressure on supply, which is bullish for energy prices.”

Crude stocks at the Cushing, Okla., Nymex delivery hub rose by 200,000 barrels for the week, the EIA said, while domestic petroleum production remained at 13.2 million barrels per day.