U.S. crude oil drifts lower, trades below $68 per barrel despite war in Lebanon

U.S. crude oil prices drifted lower Tuesday as the risk of rising supply from OPEC+ overshadows a dramatic escalation of the war in the Middle East.

Israel has dispatched ground forces into southern Lebanon after pounding the Iran-backed militia Hezbollah with airstrikes for days, eliminating much of the group’s leadership.

“We have two wars going on at the moment, we’ve had a massive racheting up of tensions in the Middle East and yet oil to date has not been affected by either conflict in a material way,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC’s “Money Movers.”

For now, traders remain focused on weak demand in China and the prospect of OPEC+ producing more oil starting in December, Croft said.

Here are Tuesday’s energy prices at 8:43 am ET:

• West Texas Intermediate November contract: $67.33 per barrel, down 85 cents, or 1.25%. Year to date, U.S. crude oil has fallen 6%.
• Brent December contract: $70.58 per barrel, down 88 cents, or 0.88%. Year to date, the global benchmark has dropped more than 8%.
• RBOB Gasoline November contract: $1.8973 per gallon, down 0.03%. Year to date, gasoline has pulled back nearly 10%.
• Natural Gas November contract: $2.870 per thousand cubic feet, down 1.81%. Year to date, gas has gained 14%.

OPEC leader Saudi Arabia might be prepared to allow more oil back onto the market to pressure members such as Iraq with lower oil prices, said Bob McNally, president of Rapidan Energy. Saudi has become increasingly frustrated with Iraq producing more crude than then their production targets, McNally said.

“There are good odds that OPEC+ leadership will sweat the producers,” McNally told CNBC’s “Street Signs.” “Every once in a while, it seems, there has to be a price drop to remind members of OPEC+ that they have an obligation to participate in collective supply management.”

This would push Brent prices down toward $60 per barrel, or below in 2025, McNally said.

“Our base case is they will go higher, but that is the risk, that we would be into the 60s with surpluses next year and that would be tolerated as sort of a temporary corrective action to get Iraq to come into compliance,” McNally said.