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After shedding some 6% over the past three trading days, oil prices were once again under pressure on Wednesday morning as economic concerns and hopes of containment in the Middle East balanced out the latest weekly oil inventory report from the American Petroleum Institute.
The API estimated a decline in inventories while analysts had expected a build. This would normally push oil prices higher but this upward pressure was countered by politicians pushing for a ceasefire in Israel and Gaza and continued economic concerns.
On the headwind side, S&P Global reported disappointing business activity data for the eurozone, which appears to have surprised some observers despite multiple indications Europe’s single-currency zone was suffering the effects of higher energy costs and equally higher interest rates.
The eurozone’s PMI reading dropped to 46.5 this month, reported, down from 47.2 in September. The data has reignited recession fears in Europe, which should have been burning already after Germany entered recession.
"Oil's pullback has coincided with disappointingly soft European PMIs, suggesting at least some softening from the demand side, rather than being wholly attributable to war-related supply disruption threats being assuaged," Mizuho Bank’s head of economics and strategy, Vishnu Varathan, said in a note this week, as quoted by Reuters.
ING analysts, meanwhile, reported that speculators had increased their bullish bets on oil over the past week driven by the war premium that got added to prices after Hamas attacked Israel. In a Monday note, they pointed out that “Price direction in the oil market continues to be dictated by developments in the Middle East with concerns over the potential for the Israel-Hamas conflict to spread.”
In his note, Mizuho’s Varathan concurred, saying that it was too early to assume that the war premium has gone for good.
"(It's) certainly not sufficiently so to declare with any confidence that geopolitical risk premium associated with the Israel-Hamas conflict has meaningfully and durably dissipated," he wrote.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.