By Shariq Khan
NEW YORK (Reuters) -Oil prices edged higher on Wednesday despite a surprise rise in U.S. gasoline inventories, as investors worried that a possible extension of the Gaza war could disrupt Middle Eastern crude supplies.
futures rose 24 cents, or 0.3%, to settle at $85.25 a barrel. U.S. West Texas Intermediate crude futures closed 7 cents higher at $80.90 a barrel.
Cross-border tensions between Israel and Lebanese Hezbollah have escalated in recent weeks, fueling fears of an all-out Israel-Hezbollah war that could attract other regional powers, including major oil producer Iran.
“The geopolitical risk premium is coming back into the market as a war between Israel and Lebanon would likely involve direct involvement from Iran, which would be a concern,” said Andrew Lipow of Houston-based Lipow Oil Associates.
Turkish President Tayyip Erdogan said his country stood in solidarity with Lebanon and called for support from regional countries.
Houthi attacks on shipping in the Red Sea have supported oil prices. The group said it used a number of drones to attack a ship in the Israeli port of Haifa in a joint military operation with the Islamic Resistance in Iraq.
Early in the session, oil prices fell after the US Energy Information Administration (EIA) reported a 3.6 million barrel rise in the country’s stocks last week, surprising analysts polled by Reuters who had expected a decline. [EIA/S]
U.S. inventories are rising while stocks elsewhere are declining, UBS analyst Giovanni Staunovo noted.
“I would call the oil market a story of different stories,” Staunovo said. “We saw oil inventories decline in Japan and Europe last week. So it looks like the market is tightening, but not yet in the US.”
UBS expects oil prices to rise in the coming weeks.
Oil traders are concerned about weak U.S. gasoline consumption during the summer driving season.
U.S. gasoline consumption represents about 10% of the world’s total oil consumption, and the country’s gasoline demand was down 3.6% last week from a year ago to about 8.9 million barrels per day. Stocks of the fuel rose unexpectedly even as refiners cut production. [EIA/S]
“These statistics will certainly disappoint the gas bulls,” Lipow said. “If there is no hurricane, we will have enough supplies for the summer season, with the 4th of July just around the corner.”
