Oil prices rose more than 1% on Wednesday in response to an Israeli attack in Qatar, Poland’s downing of drones in its airspace and a push by the U.S. for new sanctions on buyers of Russian oil, although concerns about excess crude supply capped gains.
Brent crude futures gained $1.10, or 1.66%, to close at $67.49 a barrel and U.S. West Texas Intermediate
crude futures rose $1.04, or 1.66%, to close at $63.67 a barrel.
Prices had settled 0.6% higher in the previous trading session after Israel said it had attacked the leadership of the Palestinian militant group Hamas in Doha. Both benchmarks rose nearly 2% shortly after the attack, but then retraced much of their gains.
Geopolitical tensions also rose when Poland shot down drones over its airspace during a widespread Russian attack in western Ukraine on Wednesday, marking the first time a NATO member had fired shots in the war. However, there was no immediate threat of oil supply disruption.
“The dark cloud of surplus ahead is … hanging over the market with Brent trading two dollars lower than last Tuesday. Geopolitical risk premiums in oil rarely last long unless actual supply disruption kicks in,” SEB analysts said.
U.S. President Donald Trump has urged the European Union to impose 100% tariffs on China and India – major buyers of Russian oil – as a strategy to pressure Moscow to enter peace talks with Ukraine, according to sources.
With EU officials in Washington to discuss Russia sanctions, European Commission chief Ursula von der Leyen said on Wednesday the bloc was considering a faster phase-out of Russian fossil fuels as part of new measures aimed at Moscow.
The 27-member bloc is very unlikely to impose crippling tariffs on India or China, EU sources said.
Traders expect the Federal Reserve will cut interest rates at its September 16-17 meeting, which could boost economic activity and demand for oil.
But the supply outlook remains bearish.
U.S. crude stocks, gasoline and distillate inventories rose last week, the Energy Information Administration said on Wednesday.
Crude inventories increased by 3.9 million barrels in the week to September 5, the EIA said, compared with analysts’ expectations in a Reuters poll for a draw of 1 million barrels.
U.S. gasoline stocks rose by 1.5 million barrels, compared with analysts’ estimates for a draw of 200,000 barrels. Distillate stockpiles, which include diesel and heating oil, rose by 4.7 million barrels, versus expectations for a rise of 35,000 barrels.
“A very bearish report. The big headline is that crude build … and then on top of that we had a big drop in gasoline, so now we are waiting to see how much gasoline demand will fall off a cliff after the U.S. summer driving season, and it looks like it will be substantial,” said John Kilduff, partner with Again Capital.
“Given the economic data points lately showing an indicated slowdown, especially in the labor market, this weak gasoline demand and pattern of low exports could be other indicators of a slowing economy in the U.S. and potential globally,” Kilduff added.
The EIA cautioned on Tuesday that global crude prices will be under significant pressure in the coming months because of rising inventories as the OPEC+ group, which includes the members of the Organization of the Petroleum Exporting Countries and its allies, increases output.