Oil prices declined more than 1% on Thursday as investors assessed mounting supply risks in the Middle East alongside potential changes to US sanctions on oil tankers.
Escalating attacks on commercial vessels near the Strait of Hormuz have raised concerns about global energy supplies. However, reports that Washington could ease restrictions on certain sanctioned ships have added downward pressure on crude prices.
Brent crude futures dropped $1.76, or 1.7%, to $104.30 per barrel by 06:25 GMT. Meanwhile, US West Texas Intermediate (WTI) crude fell $1.06, or 1.1%, to $94.03 per barrel, reversing gains recorded during the previous trading session.
Middle East Tensions Threaten Global Oil Supplies
Oil markets remain sensitive to geopolitical developments as attacks on shipping routes intensify across the Middle East.
WTI crude reached a three-week high during Wednesday’s session following an attack by Yemen’s Iran-backed Houthi forces on Saudi Aramco’s headquarters.
Additionally, Tehran announced new tactics aimed at targeting vessels traveling through the Strait of Hormuz. Iranian authorities indicated that these measures were intended to maintain upward pressure on global oil prices.
Maritime officials reported that two commercial vessels, a container ship and a dry bulk carrier, sank near the strategic waterway after separate projectile strikes within a 24-hour period.
Shipping incidents around the strait have increased considerably over the past 10 days.
Iran has linked its intensified attacks to the US blockade of Iranian ports and additional sanctions imposed during the previous month.
These developments have heightened concerns about the security of one of the world’s most important energy transportation routes.
US Considers Easing Oil Tanker Sanctions to Reduce Costs
The ongoing conflict involving Iran has disrupted maritime trade and pushed shipping expenses to record levels.
In response, the Trump administration is reportedly considering relaxing sanctions on certain vessels associated with the so-called shadow fleet.
These tankers have historically transported crude oil and petroleum products from sanctioned countries, including Russia, Iran and Venezuela.
According to a US official, discussions are focused on potentially allowing legally traded oil to move aboard vessels that were previously subject to American sanctions.
Such a policy adjustment could help reduce transportation costs and improve the availability of shipping capacity.
Nevertheless, uncertainty remains over whether Washington will implement the proposed changes and how quickly they could affect international oil markets.
Rising Oil Production Helps Limit Price Increases
Despite ongoing geopolitical tensions, additional crude supplies from Russia and Middle Eastern producers have helped prevent a stronger rally in oil prices.
According to the International Energy Agency (IEA), Russian crude oil production increased by 65,000 barrels per day in September, reaching approximately 8.43 million barrels per day.
However, Russian output remained 870,000 barrels per day below its level from the same period a year earlier.
The IEA also reported a significant recovery in crude exports from Middle Eastern Gulf producers.
Regional exports increased by 4.4 million barrels per day in September, reaching approximately 75% of their prewar levels.
Priyanka Sachdeva, head of market insights at Phillip Nova, explained that alternative transportation routes and logistical arrangements continue to help oil reach international buyers.
Although there is little evidence of an imminent peace agreement, these alternative supply channels have reduced the risk of a more severe global oil shortage.
However, such arrangements involve higher transportation costs and leave energy markets vulnerable to further disruptions.
US Crude Oil Inventories Record Sharp Decline
Meanwhile, preliminary US inventory figures revealed a substantial reduction in domestic crude oil supplies.
According to market sources citing American Petroleum Institute (API) data, US crude inventories dropped by 11.1 million barrels during the week ending October 9.
The decline was considerably larger than economists and energy analysts surveyed by Reuters had anticipated.
Distillate inventories also decreased during the reporting period, while gasoline stockpiles increased.
Typically, a larger-than-expected reduction in crude inventories provides support for oil prices because it can indicate stronger demand or tighter supplies.
However, crude futures showed little positive reaction to the latest figures.
Analysts at Haitong Futures observed that the market’s limited response to the substantial inventory drawdown suggests investors remain hesitant to push prices higher at current levels.
Oil Market Awaits Official US Inventory Data
Investors are now turning their attention to the upcoming inventory report from the US Energy Information Administration (EIA).
The official figures are scheduled for release at 12:00 p.m. EDT (16:00 GMT), one day later than usual because of the Columbus Day holiday on Monday.
The report could provide additional insight into US crude demand, refinery activity and overall petroleum supply conditions.
For now, oil prices remain caught between opposing market forces.
Persistent Middle East tensions and threats to maritime trade continue to support concerns about supply disruptions. At the same time, recovering production, alternative shipping arrangements and potential US sanctions relief are limiting upward price momentum.
Consequently, investors are likely to remain focused on geopolitical developments, global oil shipments and incoming inventory data when assessing the next direction for crude prices.
