Crude oil holds gains as Israel vows ‘painful’ response to Iran missile

U.S. crude oil held to gains Wednesday as Israel vowed to respond to an Iranian missile attack, though prices have come off session highs due to a bearish stockpile build in the U.S.

U.S. oil stockpiles rose by 3.9 million barrels last week while gasoline inventories increased by 1.1 million barrels, according to the Energy Information Administration.

The inventory data leans bearish “in stark contrast to the current geopolitical backdrop driving prices higher today,” said Matt Smith, lead oil analyst for the Americas at Kpler.

U.S. crude rose nearly 4% earlier in the session as traders fear Israel could target Iran’s oil infrastructure in retaliation for a ballistic missile attack.

Here are Wednesday’s closing energy prices:

• West Texas Intermediate November contract: $70.10 per barrel, up 27 cents, or 0.39%. Year to date, U.S. crude has has fallen about 2%.
• Brent December contract: $73.90 per barrel, up 34 cents, or 0.46%. Year to date, the global benchmark is down about 4%.
• RBOB Gasoline November contract: $1.9859 per gallon, up 0.98%. Year to date, gasoline is down more than 5%.
• Natural Gas November contract: $2.886 per thousand cubic feet, down 0.35%. Year to date, gas is up nearly 15%.

Israel’s ambassador to the United Nations, Danny Danon, vowed late Tuesday that Israel will exact a “painful” response against Iran. Danon’s threat came hours after the Islamic Republic launched around 180 ballistic missiles at Israel in retaliation for the assassination of top Hamas and Hezbollah leaders.

“The next turn in this retaliation spiral may very well involve oil – via the degrading of Iran’s oil capacity or Iran’s proxies attacking oil and gas shipping from the Persian Gulf,” Piper Sandler analysts told clients in a Wednesday note. Israel might take aim at Iran’s oil industry to hit Tehran’s income and degrade its ability wage war, they said.

The geopolitical risk premium, however, should remain moderate given high spare oil capacity globally and the fact that there have been limited actual production disruptions, Goldman Sachs analyst Yulia Zhestkova Grigsby told clients Wednesday.

OPEC+ is planning to increase oil production in December, and U.S. output has been set records. Demand in China, the world’s largest crude importer, has also been soft this year.