Recent government data reveals a sharper-than-expected drop in commercial crude stockpiles in the United States, coinciding with a worrying escalation of tensions in the Middle East that has significantly impacted oil futures. As of the week ending July 26, crude inventories, excluding the strategic petroleum reserve, decreased by 3.4 million barrels, bringing the total down to 433 million barrels, according to the Energy Information Administration (EIA).
This figure surpasses the expectations set by market analysts, who had forecasted a reduction of only 1.1 million barrels, as per a Bloomberg poll. In addition to the decline in crude inventories, total motor gasoline stocks also witnessed a notable decrease, dropping by 3.7 million barrels week-over-week.
On the other hand, distillate fuel stocks increased by 1.5 million barrels, while propane and propylene stocks saw an addition of 2.9 million barrels. The total commercial petroleum inventories experienced a decline of 2.4 million barrels last week, reflecting the ongoing shifts in market dynamics. Refinery inputs for crude oil averaged at 16.2 million barrels per day, which marked a decrease of 258,000 barrels from the previous week's average.
The operational capacity of refineries stood at 90.1%, a slight drop from the week before, when capacity utilization was recorded at 91.6%. Notably, crude stocks are now approximately 4% lower than the five-year average for this time of year, highlighting a tightening supply situation. In terms of gasoline production, there was a reduction to 10 million barrels per day from 10.2 million barrels in the preceding week.
Conversely, the output of distillate fuel saw an upturn, climbing to 5 million barrels per day, compared to 4.9 million barrels the week prior, as indicated by EIA data. On the futures market, West Texas Intermediate (WTI) crude prices surged by 4.8%, reaching $78.25 per barrel, following the unexpected news of Hamas leader Ismail Haniyeh's death in Iran.
Brent crude prices also experienced an uplift, rising 4% to $81.20 per barrel. These movements signal growing investor anxiety surrounding geopolitical risks that could hinder supply further. In the wake of these developments, Iran has accused Israel of orchestrating Haniyeh's assassination. Iran's supreme leader, Ayatollah Ali Khamenei, has vowed retaliation, amplifying tensions in the region, as reported by CNBC.
Concurrently, Israeli Defense Minister Yoav Gallant addressed troops, asserting that while Israel does not seek war, it is preparing for all eventualities. This recent turmoil, compounded by simmering conflicts between Israel and Hezbollah in Lebanon, has caused the market to refocus on the possibility of the conflict destabilizing the broader Middle East.
According to analysts at Saxo Bank, the mounting geopolitical risks could have profound implications for oil supply and prices, signaling potential volatility ahead for investors in energy markets..