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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The War Premium Fizzles Out In Oil Markets

  • Oil prices are set for only a modest gain this week despite surging at the start of the week after Hamas attacked Israel and sent the geopolitical risk premium soaring.
  • Both the EIA and API reported large inventory builds this week which added downward pressure to oil prices, with Brent trading close to $87 and WTI near $84.
  • Efforts to halt the spread of the war between Hamas and Israel have also helped to lower oil prices, although the geopolitical risk premium remains.
oil prices

Crude oil prices are set for a modest gain this week as the war premium that emerged in the aftermath of last weekend’s attacks of Hamas on Israel appeared to cool down as inventories built and nations made a clear attempt to contain the violence.

Brent crude is set to end the week with a gain of 2.3%, Reuters estimated, while West Texas Intermediate is about to book a 0.8% gain.

One of the reasons for the short-lived rally was the apparent determination to contain the latest flare-up of violence in the Middle East and prevent any further escalation. President Biden has been unequivocal in his support for Israel and U.S. forces have been put on alert as a clear deterrent to other nations involving themselves in the conflict. At the same time, he has emphasized the importance that Israel and Netanyahu follow the rules of war.

Another factor that helped keep oil prices under control was the massive oil inventory build reported this week by both the American Petroleum Institute and the Energy Information Administration. The API saw the build at 13 million barrels while the EIA estimated it at 10.2 million barrels.

Separately, the International Energy Agency reported that Russian crude oil and fuel exports had climbed higher in September despite a deal with Riyadh to reduce oil exports by 300,000 bpd. According to the IEA, crude oil and fuel exports from Russia were up by 460,000 bpd between August and September. Russia’s Deputy Prime Minister has since claimed that the country’s pledge to reduce oil exports by 300,000 bpd includes oil products.

Meanwhile, all eyes are on Iran after the U.S. said it would investigate whether Tehran was involved in the planning of the Hamas attacks and canceled the transfer of $6 billion to Iran as part of a prisoner exchange deal. Iran has denied any involvement.

The U.S. also imposed the first sanctions on two tanker owners that have been transporting Russian crude oil abroad, claiming the oil they transported had been sold at a price higher than the cap of $60 per barrel imposed on Russian crude by the G7 and the European Union.

This added to oil’s upward potential, as did OPEC’s latest monthly report that saw oil demand continue to be resilient. The effect was reinforced by the IEA’s monthly report, which acknowledged the supply situation with oil was a tight one.

While oil markets remain tight and geopolitical risk will keep traders on edge for the foreseeable future, demand concerns and growing inventories continue to weigh on oil prices amid economic uncertainty.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on October 13 2023 said:
    Let us put the war premium aside for a moment. There is an English proverb in existence since 1,500 which says: “A man’s word is his bond”. Of recent times, the United States unfortunately has failed totally to abide by this proverb. Examples abound.

    1- The US said it would investigate whether Tehran was involved in the planning of the Hamas attack on Israel. But before establishing whether Iran was involved or not, it cancelled the transfer of $6 billion to Iran as part of a prisoner exchange deal it agreed to and promised to deliver long before the attack.

    2- Former president Donald Trump authorized Israel to annex parts of the West Bank on which a Palestinian State was supposed to be established as part of a two-State policy suggested by the United States and agree upon by Israel and all US administrations.

    3- In 2016 Former President Trump walked out unilaterally of the Iran nuclear deal which President Batak Obama’s administration signed and which the UN Security Council approved unanimously.

    4- The Biden administration has tried to wriggle out of a 1978 binding treaty with China over the status of Taiwan in which the Nixon administration accepted and signed for that Taiwan is an integral part of China. Yet the Biden administration has been providing weapons to Taiwan thus strengthening the hand of the governing party calling for independence.

    That is why there is an overwhelming distrust of the United States even among its close allies.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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