Oil prices drop as prospect of additional supply offset Mideast fears

Oil prices were down by more than 2% on Tuesday as a stronger supply outlook and lukewarm global demand growth outweighed fears over escalating conflict in the Middle East and its impact on crude exports from the region.

Brent crude futures were down US$1.49, or 2.08%, at US$70.21 a barrel by 8:40 a.m. GMT. U.S. West Texas Intermediate crude futures lost US$1.55, or 2.27%, to US$66.62.

A panel of top ministers from the OPEC+ producer group meets on Oct. 2 to review the market, with no policy changes expected.

OPEC+, comprising the Organizations of the Petroleum Exporting Countries (OPEC) plus allies including Russia, is scheduled to raise output by 180,000 barrels per day (bpd) in December.

The possibility of Libyan oil output recovering also weighed on the market. Libya’s eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that drastically reduced the country’s oil output.

“The idea of returning Libyan crude and the forthcoming trimming of voluntary cuts by OPEC+ in December serves as interference for those contemplating reduced oil stocks in the U.S. and improving cracks,” said John Evans, analyst at oil broker PVM.

In China, manufacturing activity shrank sharply in September, a private sector survey showed on Monday.

Analysts say a slew of stimulus measures over the past week are likely to be enough to bring China’s 2024 growth back to about 5% after several months of below-forecast data cast doubts over that target, though the longer-term outlook remains little changed.

Israel began ground incursions in Lebanon on Tuesday, with its military saying troops had begun raids against Hezbollah targets in the border area.

The attacks follow Israel’s killing on Friday of Hezbollah head Hassan Nasrallah and represent an escalation in a conflict that now threatens to suck in the United States and Iran.

“Worries that Iran will be drawn into action against Israel have helped support prices, but current rhetoric from Iran suggests they are not keen on an escalation beyond their proxies in Yemen, Lebanon and Palestine,” said Panmure Gordon analyst Ashley Kelty.

In the United States, crude oil and fuel stockpiles were expected to have fallen by about 2.1 million barrels in the week to Sept. 27, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of a report from the American Petroleum Institute (API) industry group due at 8:30 p.m. GMT on Tuesday.

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