International crude oil prices turned positive and jumped nearly three per cent on Tuesday, October 1, after logging the biggest monthly drop in two years, following reports Iran was preparing to launch a missile attack on Israel. Middle East geopolitical conflicts lead to supply deficits in the market.

Brent futures rose $1.84, or 2.6 per cent, to $73.54 a barrel, while US West Texas Intermediate (WTI) crude rose $1.88, or 2.8 per cent, to $70.05. Brent hit a two-week low earlier in the session. Back home, crude oil futures last traded 3.48 per cent higher at ₹5,942 per barrel on the multi-commodity exchange (MCX).

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-A senior White House official said the US has indications Iran will launch a ballistic missile attack against Israel. Before the news, the oil market was trading near a two-week low as an outlook for increased supplies and tepid global demand growth outweighed fears over escalating conflict in the Middle East and its impact on crude exports from the region.

-A panel of ministers from the Organisation of Petroleum Exporting Countries and its allies (OPEC+) will meet on October 2 to review the oil market, with no policy changes expected. Starting in December, the OPEC+ group, comprising its allies, such as Russia, is scheduled to raise output by 180,000 barrels per day (bpd) each month.

-The possibility of Libyan oil output recovering also weighed on the market. Libya's eastern-based parliament agreed on Monday to approve the nomination of a new central bank governor, which could help to end a crisis that reduced the country's oil output.

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-Analysts said the looming resumption of Libyan output was bearish for oil prices, while Chinese stimulus, US oil demand growth, and slowing US crude supply growth were bullish. In China, manufacturing activity shrank in September, according to a private sector survey conducted on Monday.

-Analysts say stimulus measures implemented last week are likely to bring China's 2024 growth back to about five per cent after several months of below-forecast data cast doubts over that target. However, the longer-term outlook remains unchanged.

-Israel began ground incursions in Lebanon on Tuesday, with its military saying troops had begun raids against Hezbollah targets in the border area. Iran backs the Hezbollah group. The attacks follow Israel's killing on Friday of Hezbollah head Hassan Nasrallah and represent an escalation in a conflict that threatens to suck in the US and Iran.

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-Analysts also said risk weighting for front-month oil futures is contingent upon what Israel might do next and if there is a direct confrontation with Iran. According to news agency Reuters, analysts projected US energy firms pulled about 2.1 million barrels of crude out of storage during the week ended September 27.

-If correct, that would be the third withdrawal in a row and compares with a withdrawal of 2.2 million barrels during the same week last year and an average increase of 0.4 million barrels over the preceding five years (2019-2023).

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“WTI crude oil prices surged above $69 per barrel yesterday as Israel intensified its assault on Lebanon following the killing of Hezbollah leadership last week, raising concerns about a broader regional conflict involving Iran,” said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.

Reports surfaced that Libya is preparing to restore oil output after two rival factions reached an agreement last week. This led to a pullback in oil prices to $67.60 before closing flat at $68 per barrel. Today, WTI crude steadied above $68 as markets weigh Israel’s targeted operations against Hezbollah in southern Lebanon against the potential for increased Libyan oil supply. 

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However, Russian Deputy Prime Minister Alexander Novak has stated that the group will start restoring supply in December and is not discussing any new proposals. Analysts added prices face downward pressure due to concerns over a potential production increase by OPEC+ from December and the resumption of Libyan output following the resolution of internal disputes. 

“Last week's economic stimulus measures announced by China’s central bank may lend support to prices at lower levels. We anticipate prices to remain volatile. Key support levels are $67.55–$66.90, with resistance at $68.70–$69.40. In INR terms, support is at ₹5,680– ₹5,600, while resistance stands at ₹5,800– ₹5,865,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.