By Nicole Jao
NEW YORK (Reuters) -Oil prices edged up on Wednesday on worries that the escalating conflict in the Middle East could threaten oil supplies from the world’s top producing region, but a large build in inventories limited gains.
futures rose 34 cents, or 0.46%, to settle at $73.90 per barrel. U.S. West Texas Intermediate crude climbed 27 cents, or 0.39%, to settle at $70.10 per barrel.
On Tuesday, Iran fired more than 180 missiles at Israel, its biggest ever direct attack on the country. Israel and the United States vowed retribution for the attack, a sign that conflict in the region is intensifying.
Israel’s retaliation could include targeting Iranian oil production facilities among other strategic sites, U.S. news website Axios reported on Wednesday citing Israeli officials.
On Wednesday, Iran said its missile attack on Israel was over, barring further provocation. It added that any Israeli response to its attack would be met with widespread destruction.
An attack on Iran’s oil infrastructure could provoke Tehran to respond with a strike on Saudi oil facilities, similar to one conducted in 2019 on crude processing facilities there, said Tamas Varga of oil brokerage PVM.
“Any of these events would irretrievably send oil prices considerably higher,” he said.
In another escalation of the conflict, the Israeli military on Wednesday sent regular infantry and armored units to join ground operations in southern Lebanon against Iran-backed Hezbollah.
At a United Nations Security Council meeting about the Middle East on Wednesday, Israel and Iran threatened each other with retaliation if attacked.
“A major escalation by Iran risks bringing the U.S. into the war,” Capital Economics said in a note. “Iran accounts for about 4% of global oil output, but an important consideration will be whether Saudi Arabia increases production if Iranian supplies were disrupted.”
US CRUDE INVENTORIES RISE
Iran’s oil output rose to a six-year high of 3.7 million barrels per day in August, ANZ analysts said.
Offsetting some gains made during the week, U.S. crude inventories rose by 3.9 million barrels to 417 million barrels in the week ended Sept. 27, the Energy Information Administration said. This compared with analysts’ expectations in a Reuters poll for a 1.3 million-barrel draw. Gasoline stocks also rose last week, but distillate inventories fell.
“As we descend into seasonal refinery maintenance, a chunky drop in refining activity has ushered in a build to crude inventories,” said Matt Smith, lead oil analyst at Kpler.
A meeting on Wednesday of the top ministers of OPEC+ kept oil output policy unchanged. The group is set to raise output by 180,000 bpd each month from December.
“Any suggestion that production hikes will proceed could offset concerns of supply disruptions in the Middle East,” ANZ analysts said.
The Wall Street Journal reported on Wednesday that Saudi Arabia’s oil minister warned oil prices could drop to $50 per barrel if OPEC+ members do not stick to agreed-upon output cut. OPEC refuted this claim, saying the article was “wholly inaccurate and misleading”.