Oil Prices Ease as U.S. Inventory Build Tempers Geopolitical Risk

Oil prices retreated during Asian trading on Thursday, giving back a portion of the previous session's sharp gains as a surprise build in U.S. crude inventories weighed on sentiment. The pullback follows a rally that saw prices jump nearly 4% amid renewed geopolitical tensions between the United States and Iran.

As of 20:32 ET (00:32 GMT), Brent crude futures for November delivery fell 1% to $102.10 per barrel, while West Texas Intermediate (WTI) crude futures declined 0.7% to $91.50 per barrel. The previous day's surge was driven by conflicting messages from world leaders, with U.S. President Donald Trump warning he could "annihilate" Iran if a deal wasn't reached, while Iranian President Masoud Pezeshkian maintained that Tehran was still open to diplomacy.

Diplomatic Uncertainty Meets Market Fundamentals

The market's focus is split between the geopolitical risk premium and fundamental supply data. A senior Iranian official told Reuters that Tehran was reviewing a U.S. response to an Iranian proposal to end hostilities, but noted that "significant differences remained."

Indirect discussions have reportedly included the potential reopening of the Strait of Hormuz, a critical chokepoint for global energy shipments. However, Iranian security chief Mohsen Rezaei stated Wednesday that the waterway would not reopen until Tehran's conditions were met, keeping supply risks elevated.

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U.S. Inventories Rise Unexpectedly

Adding downward pressure on prices, the U.S. Energy Information Administration (EIA) reported that domestic crude inventories rose significantly. Key figures from the report for the week ended Sept. 18 include:

• U.S. crude inventories: Increased by 3 million barrels, contrary to analyst expectations for a 640,000-barrel draw.
• Gasoline inventories: Fell by 1.7 million barrels.
• Distillate inventories: Declined by 400,000 barrels.

The unexpected build in crude stocks suggests softer demand or robust supply, counteracting some of the market's geopolitical fears. Meanwhile, improving supply from other major producers, including Saudi Arabia restarting its East-West pipeline and Iraq increasing exports, is also helping to cap price gains.