Oil News: Middle East Tensions Lift Crude Prices, U.S. Inventory Build Cap Gains

Crude Oil Futures Gain Amid Middle East Conflict Concerns

Light crude oil futures traded higher on Thursday, buoyed by mounting concerns over the escalating Middle East conflict. Prices are testing resistance within the key retracement zone of $69.79 to $72.21, with buyers eyeing the 50-day moving average at $71.42.

A break above $72.40 would shift the main trend upward, potentially triggering a rally towards the major breakout level at the 200-day moving average of $73.13. On the downside, layered support levels stand at $69.79, $68.22, and $67.23.

At 09:41 GMT, Light Crude Oil futures are trading $71.04, up $0.94 or +1.34%.

Middle East Tensions Support Oil Prices

Oil prices rose on Thursday, driven by fears that the ongoing Israel-Iran conflict could disrupt crude flows from the Middle East. Israeli airstrikes on Hezbollah positions in Lebanon and rising geopolitical tension with Iran, including threats of retaliation, have contributed to the market’s defensive posture. The market remains cautiously bid as traders await potential further escalation.

Despite these geopolitical concerns, rising global oil supply has capped price gains. U.S. crude inventories increased by 3.9 million barrels last week, according to the Energy Information Administration, countering expectations of a 1.3-million-barrel draw. Analysts from ANZ highlighted that swelling inventories indicate the market is well-supplied and can handle short-term disruptions.

Ample Spare Capacity Limits Price Spikes

While the Middle East conflict remains a risk factor, OPEC’s spare production capacity has tempered the fear premium in oil markets. OPEC+ has significant spare capacity, estimated at 5.86 million barrels per day (bpd), largely concentrated in Saudi Arabia and the UAE. This buffer could compensate for a total loss of Iranian supply if Israel targets Iran’s oil infrastructure, which remains a possibility as tensions escalate.

Analysts suggest that OPEC’s ability to ramp up production provides a cushion for global supply, limiting the potential for sharp price spikes. However, if the conflict spreads to Gulf nations, this spare capacity could become vulnerable, raising concerns about broader supply disruptions.

U.S. Shale Provides Further Supply Assurance

U.S. shale production, which accounts for 13% of global crude output, further cushions the market from major supply shocks. With output expected to hit a record 13.49 million bpd by year-end, the U.S. is positioned as a key supplier in mitigating any shortfall from the Middle East. This diversity of supply has helped limit the upside for oil prices, even as geopolitical tensions rise.

Despite the conflict, U.S. producers remain steady, with no immediate plans to increase production in response to higher prices. Many are maintaining a cautious stance due to OPEC+’s production cuts and concerns about compliance among member states.

Oil Prices Forecast: Limited Upside Without Major Disruptions

In the near term, crude oil prices are expected to remain volatile as traders monitor developments in the Middle East. While fears of supply disruptions could keep prices elevated, ample global supply, high U.S. production, and OPEC’s spare capacity are likely to limit significant price spikes unless the conflict escalates dramatically. The outlook remains bearish, with prices likely to stay within the $70-90 per barrel range barring further disruptions in the region. Traders should watch for any signs of a shift in OPEC+ policy or broader conflict in the Gulf, which could alter the current bearish sentiment.