Oil falls more than 1% on weaker economic outlook

  • Investors are monitoring the development of the Israel-Hamas conflict
  • US oil stocks increased more than expected – EIA
  • Macroeconomic concerns weigh in

NEW YORK, Oct 26 (Reuters) – Oil prices fell more than 1% on Thursday as worries about the global economy and energy demand weighed on sentiment and investors looked at new developments in the Middle East conflict.

Brent crude futures fell $1.09, or 1.2%, to $89.04 a barrel by 10:42 EDT (14:42 GMT) before settling down at almost 2% on Wednesday. US West Texas Intermediate crude futures fell $1.23, or 1.4%, to $84.16 a barrel.

Fear of a spreading conflict between Israel and Hamas that could embroil Iran and its allies in the region has supported oil prices in recent weeks, but nervousness is also causing investors to avoid risky assets.

The United States and other countries are calling on Israel to delay a full invasion of Gaza, which is reeling from nearly three weeks of Israeli bombing triggered by a spree of mass killings in southern Israel by Iran-backed Hamas.

“The market is in a difficult situation,” said Price Futures analyst Phil Flynn. “It’s very important to understand that we are one headline away from a major market surge.”

Prices were also affected by concerns about the broader economy. U.S. Treasury yields returned to 5% on Thursday, pushing stocks around the world to multi-month lows.

Data showed on Thursday that the U.S. economy grew at its fastest pace in nearly two years in the third quarter, raising expectations that the Federal Reserve will keep interest rates high for longer.

The increase in US crude oil inventories last week indicated weakening demand.

Stockpiles rose 1.4 million barrels to 421.1 million barrels, according to the Energy Information Administration (USOILC=ECI), exceeding the 240,000 barrel increase expected by analysts in a Reuters poll.

These data follow an unexpected deterioration in the economic situation in the euro zone this month.

“While there are no clear signs that the war will spiral, attention is once again turning to volatile volatility in the U.S. bond market and the broader instability of the global economy. This worries investors,” said MUFG analyst Ehsan Khoman.

The European Central Bank, as expected, left interest rates unchanged on Thursday, ending an unprecedented streak of ten consecutive rate increases, and maintained its policy guidance for the future.

Stephanie Kelly reports in New York; additional reporting by Ahmad Ghaddar in London and Jeslyn Lerh in Singapore Editing by Sharon Singleton, Barbara Lewis and Jan Harvey

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Correspondent from New York covering the US oil market and, since 2018, member of the energy team dealing with the oil and fuel market and federal policy regarding renewable fuels. Contact: 646-737-4649

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