DTN Oil

WASHINGTON, D.C. (DTN) -- Reversing early losses, West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Wednesday's session 2% higher. The rise came after Israeli Prime Minister Benjamin Netanyahu confirmed Israeli military is preparing for a ground invasion into the Gaza Strip following reports that the timeline of the assault is subject to the United States deploying more missile defenses in the Middle East region.

Although vague on details, including the scope of the invasion, the comments from Netanyahu quickly reinflated the geopolitical risk premium in oil markets as investors priced in further escalation in the Middle East region. Speculation has been growing in recent days that Israel would delay or scale back an expected offensive amid reports of political pressure from U.S. and European allies. Earlier today, Wall Street Journal reported that Israel agreed to delay the Gaza invasion to allow the U.S. to get more missile defenses in place. For oil investors, the central question around the invasion seems to have shifted from "will they" to "when?"

On Monday, Syria's largest oil and gas fields, Omar and Koniko, came under direct attack from Iranian-backed militia groups that targeted energy infrastructure with drone and rocket attacks, according to S&P Global. The extent of damages is unclear, but both fields are among the nearly 70% of Syria's oil and gas-producing areas controlled by the Kurdish-led Syrian Democratic Forces. Although production volumes in both fields are negligible for the global market, the attack underscores the risk to the region's energy infrastructure.

Oil futures came under selling pressure earlier in the session following government data showing a large build in U.S. commercial crude oil inventories and reports of rising crude exports from Russian ports in the Baltic and Black seas. Russian crude oil exports rose to a three-month high 3.53 million barrels per day (bpd) in the seven-day period ending Oct. 22, according to tanker-tracking data compiled and assessed by Bloomberg. This lifted the less volatile four-week average figure to 3.5 million bpd, which is around 300,000 bpd above a 3.2 million bpd target.

In the context of pledged export targets and tougher sanctions enforcement by the U.S. and European governments, the fresh tanker data adds to a bearish appraisal of the oil market that Russian crude oil will likely continue to flow at higher volumes undeterred by sanctions or commitments by Moscow.

Wednesday's inventory report from the Energy Information Administration showed commercial crude oil inventory in the U.S. jumped 1.4 million bbl last week as crude oil production remained at the record high 13.2 million bpd. Oil stored at the Cushing, Oklahoma, tank farm, the delivery point for NYMEX WTI, rose 200,000 bbl to 21.2 million bbl. The U.S. refinery run rate decreased 0.5% from the previous week to 85.6% of capacity compared with expectations for a 0.5% increase. Domestic refiners processed 15.189 million bpd of crude oil in the reviewed week, 207,000 bpd lower than the prior week average.

For the gasoline complex, demand softened for the first time in three weeks during the week ended Oct. 20, averaging 8.864 million bpd after plunging to a 25-year low 8 million bpd in the final week of the third quarter. Over the past four weeks, gasoline supplied to the U.S. market averaged 8.6 million bpd, down 2.7% from the same period last year.

At settlement, NYMEX WTI futures for December delivery jumped above $85 bbl to settle the session at $85.39 bbl, up $1.65, and international crude benchmark Brent for December delivery on ICE surged $2.06 to $90.13 bbl. NYMEX November ULSD futures declined $0.0144 to $3.0305 gallon, while front-month RBOB futures advanced $0.0166 to $2.2842 gallon.

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