Brent crude traded in a choppy range on Thursday, as fresh news about the release of emergency oil reserves helped offset mounting supply risks stretching from the Strait of Hormuz to the Black Sea.
The global benchmark Brent slipped 0.1% to settle near $106 a barrel, after member countries of the IEA pledged to complete the release of 100 million barrels of oil left over from the intervention launched in March.
WTI crude futures, which have diverged from Brent in recent sessions, climbed 3%. Reports said U.S. officials were also privately pressing for additional pledges to release more oil.
Despite the extra supply from the emergency reserve release and increased shipments through the Strait of Hormuz offering some relief, the physical market continued to flash signals of tight supply. Meanwhile, European diesel futures have more than doubled this year as fuel supplies from Russia and the Persian Gulf remain disrupted.
U.S. Central Command confirmed on Thursday that a container ship that sank in the Strait of Hormuz this week had been struck by an Iranian projectile. Analysts at Eurasia wrote in a note that oil prices could react immediately if conflict between the United States and Iran erupts again, and that an escalation could push prices into a higher range of $110 to $125 a barrel and might last for weeks or even longer until the escalation ends.
WTI and Brent have recently begun to diverge as the cost of shipping U.S. crude became cheaper, boosting demand. According to the Baltic Exchange in London, the cost of shipping a typical-sized cargo of U.S. crude from the Gulf Coast to Rotterdam fell about 12% over the past week. Freight rates on other major routes have also pulled back from record highs in recent days, giving buyers a window to move crude at lower cost. Reports said the Trump administration is studying easing sanctions on "shadow fleet" vessels as a global tanker shortage drives up shipping costs.
Technical factors may also be at play. Ryan McKay, senior commodity strategist at TD Securities, said an unusually large number of positions still need to be rolled over before the November WTI contract expires next week, which could amplify trading flows. Kpler data showed that trend-following commodity trading advisors raised their WTI crude positioning to the maximum long level of 100% on Thursday, the first time since September 25. That means their buying capacity in U.S. crude may now be exhausted, limiting further upside.
Weekly data released by the U.S. Energy Information Administration on Thursday showed U.S. crude inventories fell by 8.6 million barrels last week, the largest decline since February. The figure largely reflected the impact of halted production after hurricanes swept across the U.S. Gulf Coast, weakening its impact on prices. December Brent crude futures fell 0.1% to settle at $105.92 a barrel. November WTI crude rose 3% to settle at $97.97 a barrel.
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