Brent crude fell to $96.08 a barrel on Wednesday, extending losses from the previous session as more oil began flowing from the Middle East and the United States moved to release additional crude from its emergency reserves.
The benchmark was down 0.08% from the previous day, although it remained 6.18% higher over the past month and 47.03% above its level a year ago, according to benchmark CFD data.
The decline came as concerns about an immediate shortage of crude began to ease. Oil supplies from the Middle East, which had been disrupted by the conflict with Iran, are gradually recovering, while the United States is preparing to make more oil available from its Strategic Petroleum Reserve.
More Middle Eastern oil is returning to the market
One of the clearest changes in the market is the recovery in oil exports from the Middle East.
Saudi Arabia has resumed loading oil tankers at Yanbu, a major Red Sea export port, after restarting its East-West oil pipeline. The pipeline carries crude from Saudi Arabia’s eastern oil fields to the Red Sea, allowing the country to export oil without sending all of it through the Strait of Hormuz.
The wider recovery is also showing up in export figures.
Crude exports from Middle Eastern producers reached 16.328 million barrels per day in September, their highest level since the conflict began on February 28, according to Reuters.
JPMorgan estimates that regional exports are now about 11% below pre-war levels, meaning much of the oil that had been held back by the conflict is gradually finding its way back into the international market.
That matters because oil prices had risen sharply when traders feared that disruptions in the region could remove large volumes of crude from global supply.
With more barrels now moving again, some of that pressure is easing.
US adds another source of oil
The United States is also preparing to put more crude into the market.
The U.S. government said it will offer energy companies loans of up to 40 million barrels of crude from the Strategic Petroleum Reserve (SPR), a government stockpile designed to provide oil during major supply disruptions.
The move is part of a wider agreement involving about 30 countries to release up to 400 million barrels of emergency reserves following the conflict with Iran. The United States had committed to providing 172 million barrels, with the latest 40 million barrels representing its final contribution under the agreement.
The SPR now holds less than 284 million barrels, its lowest level since 1982, after previous releases during the current conflict and the earlier energy disruption caused by Russia’s invasion of Ukraine.
For the oil market, that means more supply is becoming available at a time when traders are watching closely for signs of a shortage.
But the conflict is not over
The fall in prices does not mean the supply risk has disappeared.
The United States and Iran are still trying to find a path towards reducing the conflict, with Qatar acting as a mediator between the two sides.
Iran has proposed a seven-day trust-building plan that could eventually allow the Strait of Hormuz to reopen and normal shipping to resume, but the two sides still disagree over the order in which the proposed steps should happen, according to a person briefed on the talks.
The Strait of Hormuz is important to the oil market because large volumes of crude and other petroleum products normally pass through it on their way to international buyers. Any disruption therefore creates concern that less oil will be available outside the region.
U.S. President Donald Trump has also denied a report that Washington was prepared to offer Iran sanctions relief and release frozen Iranian funds in exchange for progress on its nuclear programme.
That leaves oil traders watching two developments at the same time: how quickly Middle Eastern oil exports can return to normal and whether diplomatic efforts can reduce the risk of further disruption.
US inventories provide another signal
There are also signs of increased oil availability in the United States.
Data from the American Petroleum Institute showed that U.S. crude and gasoline inventories increased last week, while stocks of diesel and other distillate fuels declined. Official figures from the U.S. Energy Information Administration were due later on Wednesday.
Taken together, the recovering Middle Eastern exports, additional U.S. reserve oil and higher U.S. crude inventories are giving the market more confidence that supplies can meet demand in the near term.
But oil prices remain well above last year’s levels.
