Oil Prices Edge Up on Middle East Risk
Oil Prices Rise Slightly
Oil prices rose slightly on Tuesday amid concerns about potential disruptions to supply in the Middle East. However, uncertainty surrounding potential U.S. interest rate cuts and their impact on fuel demand limited the gains.
Price Movement
At 0420 GMT, Brent crude futures edged up 7 cents or 0.1% to $82.07 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 10 cents or 0.1% to $77.02 a barrel.
Recent Trade Activity
Following a 6% increase last week, oil prices remained near flat in Monday’s trade.
Middle East Tensions
The conflict in the Middle East has been a contributing factor to the elevated oil prices. On Monday, Yemen’s Iran-aligned Houthis fired two missiles at an Iran-bound cargo ship in the Red Sea, raising concerns about regional stability.
Impact on Supplies
The ongoing tensions have the potential to disrupt oil market supplies, particularly if the U.S. decides to tighten or enforce sanctions on Iran.
Interest Rates and Inflation
The New York Fed’s January Survey of Consumer Expectations indicated that the outlook for inflation remains unchanged, with inflation rates remaining above the Fed’s 2% target rate. Any delay in interest rate cuts could potentially impact oil demand by slowing economic growth.
Upcoming Data
Market participants are awaiting U.S. inflation data, as well as British inflation and euro zone Gross Domestic Product data. Additionally, industry data on inventories and the release of OPEC’s monthly oil market report are expected to provide further insights into market trends.
OPEC+ Decisions
OPEC and its allies, known as OPEC+, will decide in March whether to extend voluntary oil production cuts in place for the first quarter. The outcome of these decisions will have a significant impact on market dynamics.
“What will be of more interest in the coming weeks is what OPEC+ decide to do with their voluntary supply cuts which expire at the end of March,” ING analysts said in a Tuesday note. “Our balance sheet suggests that the market will be in surplus in the second quarter of 2024 if the group fails to roll over part of these cuts.”
In November, OPEC+ agreed to voluntary output cuts totalling about 2.2 million bpd for the first quarter of this year led by Saudi Arabia rolling over a 1 million bpd voluntary reduction.
