HG MARKETS:

Tuesday saw a more than $1 drop in oil prices as investors cashed out of the previous session’s surge, which sent the market to its highest point in more than a month on worries that a regional conflict may be breaking out in the Middle East. The price of a barrel of Brent crude dropped $1.17, or 1.5%, to $79.76. At $75.95 per barrel, U.S. West Texas Intermediate futures dropped $1.19, or 1.6%. Monday saw both contracts rise more than 3% to their highest points since late August. This builds on last week’s 8% weekly increase, which was the largest weekly gain in more than a year, as investors worried that rising conflicts may impair Middle Eastern oil supplies. A year after the Hamas attack on Israel that set off Israel’s continuing war in Gaza, fighting in the Middle East escalated as Iran-backed Hezbollah fired missiles toward Israel’s third-largest city, Haifa, and Israel appeared ready to expand its offensive into Lebanon.

The surge in oil prices started on October 1st, following Iran’s missile assault on Israel. Israel has vowed to strike back and is considering its options, considering Iran’s oil facilities as a potential target. However, some analysts say an attack on Iranian oil infrastructure is improbable, warning that oil prices could suffer severe downward pressure if Israel concentrates on any other target.

Developments in the Middle East will also do little to affect the oil demand forecast, which continues to look bleak adding the market was expecting U.S. inflation data on Thursday for a view on the world’s biggest economy. Although investors were worried that China’s weak growth would reduce fuel demand, the National Development and Reform Commission (NDRC) of the nation declared on Tuesday that it is completely confident in reaching its full-year economic targets. On Monday, Hurricane Milton in the United States forced the closure of at least one oil and gas platform in the U.S. Gulf of Mexico and strengthened into a Category 5 storm as it headed toward Florida. A preliminary Reuters poll indicates that analysts expect stocks to grow by 1.9 million barrels in the week ending October 4. Traders will also be watching the most recent U.S. crude oil inventory data. The official U.S. stockpile figure from the Energy Information Administration is scheduled to be released on Wednesday at 1930 HRS PKT, after the American Petroleum Institute posts its count at 0130 HRS PKT today.