Oil prices fell on Wednesday, as a surprisingly large increase in US gasoline inventories overshadowed easing supply concerns resulting from the ceasefire agreement between Israel and Hezbollah.
Brent crude futures fell 12 cents, or 0.2%, to $723.69 a barrel by 10:40 a.m. EDT (1540 GMT), and US West Texas Intermediate crude fell 15 cents, or 0.2%, to $68.64.
The Energy Information Administration said that US gasoline inventories increased by 3.3 million barrels over the week to 212.2 million barrels, compared to analysts’ expectations in a Reuters poll of a decrease of 46 thousand barrels.
The Energy Information Administration added that crude inventories fell by 1.8 million barrels in the week ending November 22, compared to analysts’ expectations in a Reuters poll for a decline of 605 thousand barrels.
Market sources, citing the American Petroleum Institute, said on Tuesday that oil inventories decreased by 5.94 million barrels and fuel inventories rose last week.
The two benchmarks settled lower on Tuesday after Israel agreed to a ceasefire agreement with Lebanese Hezbollah, effective Wednesday after both sides accepted the agreement brokered by the United States and France.
A ceasefire between Israel and the Lebanese militant group Hezbollah held on Wednesday after the two sides concluded the agreement, a rare achievement for diplomacy in the Middle East, which has been ravaged by two wars and numerous proxy conflicts for more than a year.
“The real question is how long (the ceasefire) will really be respected,” said Dennis Kessler, senior vice president of trading at BOK Financial.
And to support prices, sources from the OPEC+ group, which includes the Organization of the Petroleum Exporting Countries and allies led by Russia, said that the group is discussing an additional postponement of the increase in oil production scheduled for January.
The group, which produces about half of the world’s oil, aimed to gradually ease production cuts until 2024 and 2025, but weak global demand and rising production outside OPEC+ cast doubt on that plan. The decision will be made at the December 1 meeting.
Oil prices are undervalued, the heads of commodities research at Goldman Sachs and Morgan Stanley said, citing market deficits and risks to Iranian supplies from potential sanctions under US President-elect Donald Trump.
“With sanctions imposed by President-elect Trump looming, many believe Iran will be targeted, which could significantly slow their exports,” the Bank of Korea’s Kessler said.
Trump said he would impose 25% tariffs on all products coming to the United States from Mexico and Canada. Sources told Reuters on Tuesday that crude oil will not be exempt from trade sanctions.
Oil industry analysts and traders warned that the move would likely raise oil prices for U.S. refineries, squeezing profit margins and driving up the cost of fuel.
“We expect WTI to trade in a range of $65 to $70 per barrel, taking into account weather conditions during the Northern Hemisphere winter, the potential increase in shale oil and gas production under the incoming Donald Trump administration in the US and trends in… Demand in China said Hiroyuki Kikukawa, president of NS Trading, part of Nissan Securities.