Crude Oil Rises Amid Supply Concerns; API Stocks Increase

Oil prices saw a slight increase on Wednesday, buoyed by escalating tensions in the Middle East, despite a higher than expected rise in U.S. inventories.

As of 08:45 ET, futures for West Texas Intermediate (WTI) climbed 0.2% to $80.90 a barrel, while Brent crude increased by 0.3% to $85.55 a barrel.

### Rising Tensions in the Middle East

Both crude benchmarks experienced gains of approximately 1% on Tuesday, following a warning from Israeli Foreign Minister Israel Katz about a potential “all out war” with Lebanon’s Hezbollah, coinciding with a lull in the ongoing conflict with Hamas in Gaza.

The U.S., which supports Israel, is working to prevent a broader conflict with the Iran-backed group, as a further escalation could disrupt oil supplies from this pivotal oil-producing region. Additionally, reports emerged of a Ukrainian drone strike that resulted in a fire at a major Russian oil terminal, which could affect crude oil supplies from that country.

### U.S. Crude Inventories Increase

The heightened tensions have overshadowed reports indicating an increase in domestic crude stocks, as many were anticipating a surge in demand during the summer driving season to drive down inventory levels. According to data from the American Petroleum Institute, U.S. crude inventories rose by approximately 2.3 million barrels for the week ending June 14. This follows a decrease of 2.4 million barrels in the previous week. Analysts at ING described the unexpected rise in crude supplies as “moderately bearish.”

### UBS Anticipates Crude Oil Rebound

UBS forecasts a recovery in Brent crude prices, projecting a rise to the mid to high-$80s, supported by an extension of OPEC+ production cuts and a seasonal increase in demand. Earlier this month, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, announced intentions to gradually phase out voluntary production cuts, potentially starting in October 2024.

UBS predicts that Brent prices will stabilize around $80 per barrel next year as OPEC+ begins to incrementally increase production from the second quarter. Despite potential negative impacts on oil demand from slower economic growth and rising prices, UBS continues to anticipate demand growth through the late 2020s.