Middle East tensions and supply concerns push up oil prices
Oil prices rose more than 1% on Thursday, recouping some of the losses from the previous session. Geopolitical concerns, particularly rising tensions between Israel and Hezbollah and reports that North Korean troops are supporting Russia in Ukraine, are driving the rise. These developments have reignited concerns about supply disruptions, particularly in the Middle East, a region critical to global oil flows.
This geopolitical uncertainty, combined with concerns about a possible change in U.S. policy ahead of the presidential election, is creating volatility. Last week, the market fell more than 7% on oversupply concerns, but has since recovered about 4%, reflecting continued market volatility over potential supply risks.
US crude oil inventories skyrocket
Domestically, U.S. crude oil inventories rose by 5.5 million barrels last week, far exceeding the expected increase of 270,000 barrels. This increase was primarily due to higher import volumes and increased refinery activity following seasonal maintenance. Despite this bearish data, persistent concerns about supply shocks in the Middle East helped stabilize prices and prevented a significant decline.
Inventory growth has pushed prices down slightly, but the broader geopolitical backdrop remains. Additionally, the strengthening of the US dollar, which reached its highest since July, further weighed on oil demand from buyers using other currencies.
Saudi Arabia and GCC prepare to increase production
Beyond near-term price fluctuations, Saudi Arabia is reportedly preparing to abandon its unofficial $100 per barrel target, with production increases potentially occurring as early as December. This change is likely to expand market share, increase global supply and contribute to economic growth across Gulf Cooperation Council (GCC) countries.
Saudi Arabia's economic growth is expected to accelerate to 4.4% in 2025 from this year's expected 1.3%, supported by increased oil production, according to a Reuters poll. The UAE is expected to lead the region with an expected economic growth rate of 4.9% in 2025, capitalizing on increased production and economic diversification.
