Oil prices fall as investors weigh supply outlook, Middle East tensions

Oil Prices Decline Amid Investor Caution and Rising Geopolitical Tensions

By Sam Li and Lewis Jackson

Market Reactions to Geopolitical Events and Policy Changes

Early Trading and Price Movements

BEIJING, Oct 15 (Reuters) - Oil prices fell more than $1 in early trade on Thursday as investors weighed risks to supply from attacks on shipping through the Strait of Hormuz against US efforts to cut petroleum shipping costs by easing sanctions on vessels.

Brent crude futures fell $1.39, or 1.31%, to $104.67 a barrel by 0116 GMT, while US West Texas Intermediate crude futures were down $1.02, or 1.07%, to $94.07, reversing gains from the previous session.

Escalating Tensions in the Strait of Hormuz

Recent Attacks and Shipping Disruptions

WTI rose to a three-week high in the prior session after the Houthis attacked Saudi Aramco's headquarters and Iran said it was deploying new tactics to target ships in the Strait of Hormuz and keep oil prices high.

A container ship and a dry bulk carrier both sank near the strait in the past 24 hours after being hit by projectiles in separate incidents, maritime officials said on Wednesday.

Attacks around the waterway have surged over the past 10 days, with Iran saying it is stepping up strikes in response to the US blockade of its ports and tougher sanctions introduced last month.

US Policy Response and Sanctions Adjustments

Consideration of Easing Sanctions

With the Iran war having disrupted shipping and driven up freight costs to record highs, the Trump administration is considering easing sanctions on so-called shadow fleet vessels that have transported oil and petroleum products from countries including Russia, Iran and Venezuela to help ease prices, a US official said on Wednesday.

The new talks centre on the United States potentially allowing "legal oil" to flow on previously sanctioned vessels, the US official said.

Global Oil Supply and Inventory Updates

Production Levels in Russia and the Middle East

Increased output from Russia and the Middle East has kept a lid on prices. Russia's crude oil production rose by 65,000 barrels per day in September to 8.43 million bpd but remained down 870,000 bpd year over year, the International Energy Agency said on Wednesday.

The IEA also said crude oil exports from Middle East Gulf producers rose by 4.4 million bpd in September to around 75% of prewar levels.

US Inventory Data and Market Sentiment

Inventory Changes and Analyst Expectations

In the US, crude oil and distillate inventories fell, while gasoline stocks rose last week, market sources said on Wednesday, citing data from the American Petroleum Institute.

Crude stocks fell by 11.1 million barrels in the week ended October 9, sources said. That was a much bigger draw than analysts polled by Reuters expected.

"Despite the sharp inventory draw, oil prices barely reacted. The failure to rise on bullish news suggests investors are cautious about chasing prices higher at current levels," said Haitong Futures in a note on Thursday.

Official numbers from the US Energy Information Administration are due at 12 p.m. EDT (1600 GMT), delayed by a day following the Columbus Day holiday on Monday.

(Reporting by Sam Li and Lewis Jackson; Editing by Sonali Paul)