Oil Poised To End October With Double-Digit Losses

NEW YORK (Sputnik) - Crude prices are on track to finish October with double-digit losses as oil bulls who rushed to hedge against the Israel-Hamas war discovered to their disappointment that the rest of the market was not prepared to assign a war risk premium to a trade barely impacted by the conflict.

New York-traded West Texas Intermediate, or WTI, crude for December delivery, settled Tuesday’s session at $81.02 per barrel, down $1.29, or 1.6% on the day, to add to Monday’s 3.8% slump.

Aside from its more than 5% drop on the week, the US crude benchmark looked likely to finish the current month down as much as 11%. That would be its worst performance since May, just before the announcement of Saudi-Russian production cuts that led to four straight months of rally in oil.

UK-origin Brent crude’s most-active January contract was at $85.16, down $1.19, or 1.4%, by 15:00 Eastern US Time (19:00 Greenwich Mean Time). Brent was also down almost 11% on the month in what appeared to be its worst month since August 2022.

After last week’s stumble, oil began this week deeper in the red as traders looked beyond the war in the Middle East to concerns over the Federal Reserve's expected interest rate decision on Wednesday.

“It is interesting crude prices have given up the bulk of their gains since Hamas attacked Israel which suggests either the geopolitical risk-premium has sharply reduced or global economic concerns have increased, perhaps a combination of the two,” said Craig Erlam, analyst at online trading platform OANDA.

The Fed is expected to hold interest rates unchanged after 11 hikes between March 2022 and July this year that boosted the base US lending rate from just 0.25% to 5.5%.

But the central bank still has another meeting in December where it could do another hike. Data showed on Tuesday that US labor costs increased solidly in the third quarter amid strong wage growth while house price inflation accelerated in August, the latest signs that the Fed could keep interest rates high for some time.

On top of the wage inflation report, the Fed will get an even more influential reading on US jobs and wages when October’s non-farm payrolls report is released on Friday.

Weaker-than-anticipated factory activity in top crude importer China added to Tuesday’s market gloom. Chinese manufacturing activity unexpectedly shrank in October, while non-manufacturing growth slowed substantially, data showed.

The reading indicated that despite a slew of stimulus measures from Beijing, business activity was struggling to recover and raised more questions over just how much more Chinese oil consumption will increase this year, given the steadily worsening economic conditions.