Oil prices continue to decline amid Middle East supply worries

Oil fell for a fourth day on Wednesday as concerns about slowing European demand offset worries about Middle East supply disruptions stemming from the Israel-Hamas conflict in Gaza.

Brent crude futures dropped 28 cents, or 0.3%, to $87.79 a barrel as of 0627 GMT, while U.S. West Texas Intermediate crude futures were down 31 cents, or 0.4%, to $83.43 a barrel.

Euro zone business activity data took a surprise downturn this month, suggesting the bloc may slip into recession, creating a drag on the outlook for oil demand. Overall, the region’s oil refineries have been consuming less crude than a year ago amid lacklustre economic growth, Euroilstock data has shown.

Countries are pushing for a pause or ceasefire in fighting between Israel and Hamas in the Gaza Strip so that humanitarian aid could be delivered to besieged Palestinian civilians and the leaders of U.S. and Saudi Arabia on Tuesday discussed efforts to prevent the conflict from widening to potentially include major producer Iran.

“Oil’s pullback has coincided with disappointingly soft softer European PMIs, suggesting at least some softening from the demand side, rather than being wholly attributable to war-related supply disruption threats being assuaged,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank, in a note.

“(It’s) certainly not sufficiently so to declare with any confidence that geopolitical risk premium associated with the Israel-Hamas conflict has meaningfully and durably dissipated,” Varathan said.

Crude prices may find some support as the top parliament body in China, the world’s biggest oil importer, approved a bill to issue 1 trillion yuan ($137 billion) in sovereign bonds and allow local governments to issue new debt from their 2024 quota to boost the economy.

But demand for crude oil in China could be capped as Beijing put a ceiling for its oil refining capacity at 1 billion metric tons by 2025 to streamline its vast oil processing sector and curb carbon emissions.

Falling crude oil stockpiles in the U.S., the world’s biggest oil consumer, also supported prices. U.S. inventories declined by about 2.7 million barrels in the week ended on Oct. 20, according to market sources citing American Petroleum Institute figures on Tuesday.

The decline went against the forecast by eight analysts polled by Reuters who had estimated on average that crude inventories were up by about 200,000 barrels for the week.

Gasoline inventories dropped by 4.2 million barrels, while distillate inventories fell by about 2.3 million barrels, the API data showed.

U.S. government data on inventories is due later on Wednesday.