Oil Steadies Near $70 With Risk to Middle East Supplies in Focus

(Bloomberg) -- Oil steadied as traders continued to monitor the outlook for next year and the risk of escalation in the Middle East.

West Texas Intermediate edged lower to settle near $70 after flipping between small gains and losses throughout the session. The benchmark sank more than 4% on Tuesday on reports that Israel had agreed to avoid oil facilities in its planned response to Tehran’s recent missile strike. 

Israel launched a fresh attack in southern Beirut on Wednesday, despite Lebanon saying that it received some form of guarantee from the US that Israel will ease its offensive. Meanwhile, Iranian authorities have started efforts to contain an oil leak from subsea pipelines off the nation’s key Kharg Island terminal in the Persian Gulf. While the cause was unclear, the leak heightened attention on Iran’s export facilities.

“Negative sentiment has gradually eroded geopolitical risk premiums, as traders grow more comfortable with the notion that Israel will avoid targeting energy infrastructure,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Group. “This may prove short-sighted, but with traders operating on very short-term horizons, they are not inclined to hold positions without fresh headlines.”

Crude has been on a roller-coaster ride this month, with prices buffeted by tensions in the Middle East, as well as China’s efforts to revive domestic growth. Traders have also been weighing the market’s outlook for next year, with the International Energy Agency on Tuesday flagging prospects for a global glut. 

“Looking beyond the geopolitical noise and sentiment swings, we see the market heading toward a supply surplus by 2025,” said Norbert Rucker, an analyst at Julius Baer. 

Later Wednesday, traders will also monitor an industry report on US stockpiles for insights into consumption in the biggest oil user before official data on Thursday. Last week, stockpiles swelled by 5.81 million barrels, their biggest increase since late April.

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--With assistance from Devika Krishna Kumar.

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