Oil erases gain since Hamas attack as concerns of wider war ebb

Oil fell for a third day — at one stage erasing all of the surge on Monday that followed Hamas’ attack on Israel — as fears the conflict would spread eased and US industry data pointed to a jump in inventories.

West Texas Intermediate retreated below $83 a barrel after slumping Wednesday following a New York Times report that Iran may have been surprised by the deadly assault. The country’s apparent lack of culpability may reduce the chances of additional sanctions on Iranian oil and help prevent the nation and its proxies across the Middle East from being drawn into the conflict.

Still, US President Joe Biden’s administration is weighing re-freezing $6 billion of Iranian oil money as part of its response to the crisis. Israel has vowed to eradicate Hamas and signaled a major ground offensive on Gaza, which could destabilise the Middle East, home to around a third of the world’s crude supply.

There’s still “a latent risk of a geopolitical flare-up in oil,” said Vishnu Varathan, Asia head of economics and strategy for Mizuho Bank Reassurances of the war “not impacting oil supply are highly conditional on the conflict not spilling over, and there is just simply no guarantee of this.”

Crude’s initial gain this week has been eroded by OPEC+ leader Saudi Arabia on Tuesday reiterating support for the group’s efforts to balance global oil markets. Record-high American production, as well as the possibility of a deal between the US and Venezuela, have also helped ease concerns about the supply tightness that helped underpin a powerful rally last quarter.

US inventory levels will be in focus after the industry-funded American Petroleum Institute reported a jump of almost 13 million barrels in nationwide stockpiles, according to people familiar with the data. However, stockpiles at the Cushing, Oklahoma, hub dropped back toward critically low levels. Official figures due later on Thursday.

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