Oil changes course after drone attack on tanker

London — Oil prices erased earlier losses on Wednesday after an incident involving a commercial vessel off the coast of Oman, but rising Covid-19 cases in China capped gains.

Brent crude futures gained 0.7%, to $94.51 a barrel by 8.54am GMT, and West Texas Intermediate (WTI) rose 0.4% to $87.27 a barrel. Both benchmarks fell more than $1 earlier in the session.

The US Navy’s Fifth Fleet said it was aware of an incident on Wednesday in the Gulf of Oman involving a commercial vessel. The Associated Press had reported that a Liberian-flagged oil tanker operated by the Singapore-based Eastern Pacific Shipping was struck in an exploding drone attack off the Gulf of Oman.

Oil prices had settled higher on Tuesday after supply to parts of Europe via a section of the Druzhba pipeline was temporarily suspended, according to pipeline operators in Hungary and Slovakia.

The disruption occurred at the same time as an explosion in eastern Poland near the Ukraine border that killed two people and raised the possibility that the Russian-Ukraine conflict could spill over.

But after the initial “knee-jerk rally in oil prices, the tepid market follow-through reflects the significant prudence that will be taken to avoid an escalation”, said Stephen Innes, managing partner at SPI Asset Management.

US President Joe Biden’s comments that the missile probably wasn’t fired from Russia also helped to ease immediate escalation worries, Innes said.

In China, mounting cases of Covid-19 weighed on sentiment after an easing of restrictions to contain the virus this week.

“Oil demand growth in the country is being hampered by its unyielding faith in a zero-tolerance Covid-19 policy and persistent economic weakness,” PVM Oil analyst Stephen Brennock said.

The International Energy Agency (IEA) forecast demand growth will slow to 1.6-million barrels a day in 2023 from 2.1-million barrels in 2022.

Earlier, oil production cartel Opec cut its forecast for 2022 global demand growth for a fifth time since April, citing mounting economic challenges. Industry data showing a bigger-than-expected drop in US stockpiles provided some support to prices.

US crude oil inventories fell by about 5.8-million barrels for the week ended November 11, market sources said, citing American Petroleum Institute figures. The average estimate of seven analysts surveyed by Reuters was a decline of about 400,000 barrels.

Official data from the Energy Information Administration is due at 3.30pm GMT.

Reuters