Crude Oil Prices Rise Amid Middle East Tensions and Record US Production

Price

• Oil prices rose on Thursday from their lowest levels in several months due to concerns that the simmering conflict in the Middle East may negatively affect oil production, even as concerns persist about weak demand for crude oil.
• Brent crude futures rose $2.18, or 2.85%, to $78.66 per barrel. US West Texas Intermediate crude rose $2.4, or 3.28%, to $75.60. MCX Crude oil prices opened at 6342 with a gain of 0.24%.

Demand and Supply

• The EIA reported that Lower-48 production rose by 100 Mb/d to 13 MMb/d, the highest level ever recorded. Alaskan production remained at 400 Mb/d, resulting in a total U.S. production increase of 100 Mb/d to 13.4 MMb/d, also the highest on record.
• This increase was partly due to re-benchmarking, as we forecasted last week. In the monthly Short-Term Energy Outlook (STEO), the EIA assesses weekly domestic crude oil production estimates by comparing recent trends in the survey-based Petroleum Supply Monthly (PSM) with other current data.
• If significant discrepancies are found, the EIA re-benchmarks the weekly estimates during STEO release weeks. This week's re-benchmarking adjusted domestic crude oil production estimates by less than 50 Mb/d. 
• US oil production notched an all-time high of 13.4 million barrels per day last week, according to data from the Energy Information Administration.
• That number is up from 12.6 million barrels each day a year ago, making for an 800,000-barrel increase.
• The new production record comes just months after the EIA announced in March that the US produces more crude oil than any other country.

News

• US crude prices were up 2.8% on Wednesday at 3:40 p.m. ET, trading at $75.28 a barrel. Both US and international oil prices have dipped in recent weeks as energy traders eye a possible slowdown of the US economy.
• In its latest short-term energy outlook, the EIA said it expects natural gas inventories in the US to reach 3,954 billion cubic feet by the end of October, which is the most natural gas the country has had in storage since 2016.
• And as US oil production continues to increase, the EIA predicts global consumption will only keep growing (though slightly less than previously predicted, due to slowing economic growth in China that's expected to stall its gas usage).
• The administration expects that oil prices will rise in the latter half of the year as global oil inventories fall, partly driven by OPEC+ production cuts enforced on member countries. It expects an annual average Brent crude oil price of $86 per barrel in 2025.

Expert's Opinion

• Crude prices are supported by fears of a retaliatory attack by Iran against Israel, which could escalate the conflict in the Middle East and disrupt the region's crude oil supplies.  Iran has threatened to retaliate against Israel for last week's assassination of a Hamas leader in Tehran.  Israel's military continues to conduct operations in Gaza, and there is the risk that the war might spread to Hezbollah in Lebanon or even to a direct conflict with Iran.
• Meanwhile, ongoing attacks on commercial shipping in the Red Sea by Iran-backed Houthi rebels have forced shippers to divert shipments around the southern tip of Africa instead of going through the Red Sea, disrupting global crude oil supplies.