Oil steady as prospect of more supply offsets Middle East conflict worries

Oil prices were steady on Tuesday as the prospect of additional supply entering the market amid lacklustre global demand growth offset concerns that the escalating Middle East conflict could disrupt exports in the key producing region.

Brent crude futures for December delivery increased 13 cents, or 0.18%, to $71.83 a barrel as of 0050 GMT. U.S. West Texas Intermediate crude futures for November delivery gained 11 cents, or 0.16%, to $68.28 a barrel.

Oil markets have been under pressure from weaker-than-expected demand growth this year, particularly in China, the world’s biggest crude importer. Those demand concerns were reinforced on Monday after data showed the country’s manufacturing activity shrank for a fifth month in September.

On Monday, Brent futures ended September down 9%, its third month of declines and largest monthly drop since November 2022. It slumped 17% in the third quarter for its biggest quarterly loss in a year. WTI fell 7% last month and dropped 16% for the quarter.

Despite the demand worries, escalating tensions between Israel and the Islamic militant group Hezbollah in Lebanon has increased potential for Iran, a key oil producer and member of the Organization of the Petroleum Exporting Countries (OPEC) that backs the militia, to be directly drawn into the conflict and possibly disrupt oil exports from the region.

The Israeli military began limited, localized and targeted raids against Hezbollah targets in the border area of southern Lebanon, it said in a statement early on Tuesday. Still, major producers are set to increase their output before the end of the year. “Crude oil was little changed as traders took stock of the outlook amid rising tensions in the Middle East,” ANZ analysts said in a note.

“The risk of supply disruptions in the Middle East are being offset by the prospect of production hikes from OPEC. Despite its efforts to stabilise the oil market, prices have remained under pressure,” they added.

OPEC+, which groups OPEC members and allies such as Russia, is scheduled to raise output by 180,000 barrels per day in December.

U.S. crude oil and fuel stockpiles were expected to have fallen last week by about 2.1 million barrels in the week to Sept. 27, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of a report from the American Petroleum Institute industry group due at 4:30 p.m. EDT (2030 GMT) on Tuesday.