Crude oil prices fell more than 4% intraday as geopolitical risk premiums narrowed and inventory data weakened.

International crude oil futures fell sharply on Wednesday as market sentiment shifted from previous supply panic to profit-taking, with several negative factors jointly suppressing bullish sentiment.

As US stocks hit their daily lows in early trading, US WTI crude oil fell below $101, down about 4.6% on the day, while Brent crude oil fell to $104, down nearly 4.4% on the day. By Wednesday's close, both crude oil prices had fallen from their nearly four-month closing highs after two consecutive days of gains. Specifically, WTI October crude oil futures closed down 3.21%, the largest drop since August 4, at $102.43 per barrel. Brent November crude oil futures closed down 2.69%, at $105.83 per barrel.

The core pillar supporting high oil prices previously was market concerns that tensions in the Middle East could spill over into the Strait of Hormuz and disrupt global oil supplies. From Saudi Arabia's use of alternative export routes through Omani ports to alleviate worst-case scenarios of supply disruptions, to data from US officials regarding the passage of ships through the Strait of Hormuz, all these factors have undermined the support of geopolitical risks for crude oil. Official US data showing a much smaller-than-expected decline in crude oil inventories is also weighing on prices.

According to Reuters, Saudi Arabia is providing additional crude oil loads to Asian refiners via ship-to-ship transshipment near the port of Sohar in Oman, partially offsetting the impact of the East-West pipeline attack on global supply. Sources revealed that this alternative export arrangement has effectively eased market concerns about a widening supply gap.

Furthermore, U.S. Energy Secretary Wright stated on Wednesday, the 16th (Eastern Time), that 18 million barrels of oil passed through the Strait of Hormuz on Tuesday, demonstrating to the market that the world's most important oil shipping chokepoint is not obstructed. In an interview with U.S. media, Wright said, "Currently, we have increased the volume of oil transported through the Persian Gulf to a record high. Yesterday's transport volume was approximately 18 million barrels, which has essentially returned to pre-conflict levels."

Also on Wednesday, data released by the U.S. Energy Information Administration (EIA) showed that U.S. commercial crude oil inventories fell by only about 640,000 barrels last week, less than half of the 1.62 million barrel drop analysts had expected, while gasoline and distillate fuel inventories both increased.

In addition, the strengthening of the dollar and the rise in US Treasury yields following the Fed's expected rate hike also put additional pressure on dollar-denominated commodities.

Alternative export routes emerge, and expectations of supply disruptions cool.

The immediate trigger for this round of oil price decline was Saudi Arabia's alternative export arrangement via Oman, which disrupted market expectations of a comprehensive tightening of supply.

According to Reuters, citing sources familiar with the matter, Saudi Arabia is arranging for crude oil to be transshipped via ship-to-ship through the port of Sohar in Oman to supply Asian buyers. UBS analyst Giovanni Staunovo stated, "The news of Saudi exports from the Persian Gulf indicates that market concerns about a widening supply disruption are subsiding."

Oil prices surged by more than $3 in the previous trading day after shipping sources revealed that crude oil loading at Yanbu Port, Saudi Arabia's Red Sea export hub, had been suspended, and Riyadh had also canceled deliveries to some European customers. The suspension came against the backdrop of a drone attack on the East-West Pipeline—a 750-mile-long pipeline with a maximum daily capacity of 7 million barrels, serving as a crucial alternative export route for Saudi Arabia when the Strait of Hormuz is blocked.

According to the Wall Street Journal, Saudi Aramco is striving to restore partial operation of its East-West pipeline within days, but full repairs to the damaged pumping stations are expected to take six to eight weeks. A report by UOB Global Economics and Markets Research noted that Saudi Aramco has reportedly delayed shipments to some European customers, forcing refiners to seek alternative sources.

Weak EIA data put pressure on bullish sentiment.

Inventory data created a second layer of pressure on oil prices, putting pressure on previously accumulated long positions to be liquidated.

EIA data showed that U.S. commercial crude oil inventories fell by only 640,000 barrels last week, less than 40% of the 1.62 million barrels expected in a Reuters poll; meanwhile, gasoline inventories unexpectedly increased, and distillate fuel inventories also rose more than expected.

John Kilduff, a partner at Again Capital, said, "Data shows that refined product inventories remain stable or even rise slightly, while the decline in crude oil prices has slowed, which is generally bearish for oil prices."

David Russell, Global Head of Market Strategy at TradeStation, pointed out that overall inventories remain tight due to strong exports. "Today's data has slightly paused the energy market rally, but it has done little to alleviate broader concerns about supply shortages."

Oil price trading advisory firm Ritterbusch & Associates maintained a bullish stance in a client report, stating, "We view this oil price pullback as a technical correction, and it could still reach multi-year highs," and advised clients to buy on significant pullbacks rather than trying to pinpoint the top of the bull market.

Geopolitical risks remain, and the situation in the Middle East continues to affect market sentiment.

Despite the sharp drop in oil prices in a single day, supply risks in the Middle East have not subsided substantially, and the market remains on high alert.

According to the Wall Street Journal, citing U.S. and regional officials, the U.S. military deployed 60 to 70 Patriot missile interceptors and more than ten THAAD missile interceptors last week in response to Iran's attack on Jordan with approximately 20 ballistic missiles, further escalating tensions between the U.S. and Iran. Meanwhile, the Houthi rebels announced a new round of attacks on the port of Yanbu, and Saudi warplanes continued bombing targets in Yemen.

Navigation conditions in the Strait of Hormuz remain severe. Preliminary shipping data released on Wednesday showed that only four vessels were visible passing through on Tuesday, down from seven the previous day and well below the 10-day average of 18. International Maritime Organization records show that since the outbreak of the conflict, there have been 80 confirmed maritime incidents in the Strait of Hormuz and the wider Middle East.

The ongoing turmoil in the Middle East has begun to reshape the European physical crude oil market. According to S&P Global Commodity Insights, Norwegian Johan Sverdrup crude oil premiums jumped $7.265 per barrel on Tuesday, reaching a record premium of $19.55 over the Brent benchmark, as European refiners use it as a closer alternative to Middle Eastern crude.

The diesel market is in crisis, and inflation and policy paths face new variables.

Crude oil prices fell on Wednesday, providing some breathing room for inflation expectations in the short term, but structural tightness in the diesel market still poses a potential disturbance to the policy path.

European gas oil futures, the benchmark for European diesel, closed at a record high on Tuesday, while U.S. ultra-low sulfur diesel futures also hit a record high on the same day. Citigroup, in a report, predicted that recent tensions in the Middle East will continue to support crude oil and refined product prices until the Strait of Hormuz reopens around the fourth quarter of 2026, driven by regional diplomatic efforts.

Frank Walbaum, a market analyst at Naga.com, noted, "Europe has already suffered significant losses in diesel and aviation fuel supplies from the Middle East, while ongoing tensions in Eastern Europe have disrupted production at several major Russian refineries, prompting Moscow to restrict fuel exports." According to Russian media reports citing sources, the Russian government has decided to extend restrictions on diesel exports to fuel producers until the end of October.

As expected, the Federal Reserve raised interest rates this week for the first time in three years, pushing up the dollar and Treasury yields, which put additional downward pressure on commodity prices. While lower oil prices may help ease inflationary pressures in the short term, diesel prices remain at historically high levels, meaning the transmission effect of energy on overall inflation cannot be ignored, and uncertainty regarding the central bank's policy path persists.

UBS analyst Giovanni Staunovo stated, "Unless a peace agreement is reached or the situation in Russia improves, diesel prices are expected to remain supported."

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