Oil prices reversed their direction during Tuesday's trading session and declined, as strong crude exports from the Middle East and the G7 withdrawal of emergency stocks contributed to allaying concerns about supply, but the ongoing security risks in the region limited the amount of decline.
Brent crude futures fell 83 cents, or 0.8 percent, to $99.49 per barrel by 0650 GMT, while US West Texas Intermediate crude futures fell $1, or 1.1 percent, to $88.43 per barrel.
Priyanka Sachdeva, head of market research at Philip Nova, said, according to Reuters: “Shipping data shows that crude oil exports from the region actually exceeded pre-war levels on several days during late September... Alternative routes and logistical adjustments, in some way, allowed producers to continue the flow of supplies despite the turmoil surrounding the Strait of Hormuz.”
She added: “However, it does not yet seem logical to consider this a complete return to normal conditions with regard to supplies... as there have been new attacks on oil tankers in the Strait of Hormuz region, and the number of incidents has increased over the past days. This means that although oil shipments continue to flow, the costs of transporting them, insuring them, shipping routes, and the associated security risks remain high.”
Data showed that oil flows from the Gulf region, excluding Iran, rose to more than 81 percent of pre-war levels in September, supported by a recovery in Saudi exports despite the escalation of Iranian attacks on shipping in the region, while Iranian exports fell to zero due to the American blockade.
ING analysts said in a note on Tuesday that while the market remains concerned about the potential for supply disruptions from the region, oil producers in the Gulf continue to adapt to the current situation.
They added: “Kuwait announced that it is producing at 75 percent of pre-war levels, while Saudi Arabia also reduced the official selling price of its Arab Light crude heading to Asia for November shipments, in an indication of an improved supply picture.”
In another step to calm concerns about supplies, the G7 countries agreed on Friday to withdraw 100 million barrels of diesel and crude oil from emergency reserves, and pledged to refrain from imposing restrictions on energy exports after pressure from US President Donald Trump.
Olli Rehn, a member of the European Central Bank's Governing Council, said on Tuesday that the rapid rise in energy prices in the euro zone has not yet spread to other goods and services, adding that the recent rise in bond yields is likely to limit price pressures, while negatively affecting growth.
Inflation in the euro zone is currently exceeding the 2 percent target level of the European Central Bank by a large margin, while policymakers are discussing the need to continue raising interest rates, after the two increases approved last summer, according to Reuters.
While a number of policymakers said that inflation risks tend to be higher than expected, Rehn pointed out that there are other factors that should be taken into consideration, as conflicting forces influence the economy.
Rehn said: “Higher long-term interest rates contribute to a slowdown in growth, and also limit the transmission of higher energy prices to the prices of other goods and services and to wages,” echoing some statements made by the chief economist of the European Central Bank, Philip Lane.
European Central Bank Governing Council member Isabel Schnabel, known for her hawkish stance on monetary policy, also recently warned that the economy could be affected by higher-than-expected borrowing costs, which would limit inflation pressures in the medium term.
Bond yields rose to their highest levels in more than a decade across the euro zone, driven in part by higher US yields, along with growing concerns about the sustainability of debt levels in Europe.
However, Rehn avoided calling for a specific monetary policy move, and largely stuck to the ECB's current approach of not pre-empting its decisions by indicating future moves.
Financial markets expect the European Central Bank to implement two to three additional interest rate increases during the current tightening cycle, pricing in an 80 percent probability of a rate hike by December.
Rehn also acknowledged that energy prices remain high, and that the economy is showing exceptional resilience, supported in part by strong investments in artificial intelligence.
He said that this flexibility indicates, according to some policymakers, that price pressures may continue at a greater pace than previously expected.
