Oil Seesaws on Reports of Gaza Offensive, Powell's Remarks

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Reversing midmorning losses, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Thursday's session sharply higher following media reports suggesting Israeli armed forces are positioning for a ground offensive in northern Gaza in a move that could flare-up tensions in the volatile Middle East.

Israeli military has reportedly received the "green light" from top commanders to begin a ground offensive against the Palestinian militant group Hamas that are believed to be widely dispersed in an urban area of about 2 million people. U.S. President Joe Biden is set to deliver a primetime foreign policy address to the nation and a world audience at 8 p.m. EDT following his visit to Israel on Wednesday. The second leg of the trip was cut short following the cancellation of a regional summit with Arab leaders, which has further complicated efforts at finding a diplomatic solution.

Further stoking tensions, media airwaves were hit with the reports suggesting U.S. military base Ain Al-Asad in Iraq had been targeted with drones and rockets Thursday afternoon. Pentagon officials have confirmed the U.S. Navy destroyer USS Carney shot down multiple missiles traveling near the northern Red Sea. The situation remains fluid.

In financial markets, the U.S. dollar index nosedived against a basket of foreign currencies after Federal Reserve Chairman Jerome Powell said in prepared remarks at the New York Economic Club that U.S. monetary policy is now sufficiently restrictive. Powell added, however, that while the Fed has been aggressive in raising interest rates to slow the pace of inflation and aggregate demand, there is still no predictable path forward.

"Range of uncertainties, both new and old ones, complicates our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little," said Powell.

Still, markets interpreted Powell's message as dovish, seeing no more rate increases on the horizon either this year or in 2024. CME FedWatch Tool assigns a 98.9% probability the Fed will keep the federal funds rate steady in a 5.25% by 5.5% target range at their Nov. 1 meeting.

The oil complex came under selling pressure earlier in the session after the United States lifted all sanctions on Venezuela's oil industry for a six-month period in exchange for the return of the democratic process in the South America's nation.

"The U.S. government retains the authority to rescind authorizations should the representatives of (President Nicolas) Maduro fail to follow through on their commitments," U.S. Treasury Department said in a statement.

The shift is unlikely to significantly increase oil production in the South American nation, according to analysts and traders, since Venezuela's oil industry has been plagued with infrastructure challenges, power outages, and looting for years.

The latest report from the Organization of Petroleum Exporting Countries pegged Venezuela's oil output at 733,000 barrels per day (bpd) in September, down from 758,000 bpd in August, according to secondary sources. That is a long way off from the peak of 3.453 million bpd recorded in December 1997.

At settlement, NYMEX West Texas Intermediate futures for November delivery advanced $1.05 to $89.37 per barrel (bbl), and Brent on ICE moved up $0.88 to $92.38 per bbl. NYMEX November ULSD futures gained $0.0337 to $3.1730 per gallon, while front-month RBOB futures added $0.0082 to $2.3617 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges