Oil Prices Rise in Asian Trade Amid Red Sea Attacks and US Rate Cut Outlook
Concerns Over Red Sea Attacks and Rate Cut Expectations Drive Oil Prices Up
Oil prices have rebounded in Asian trade as concerns over attacks on shipping in the Red Sea and growing expectations of delayed U.S. interest rate cuts have driven up prices. The price of crude futures rose by 0.36% to $82.64 a barrel, while U.S. West Texas Intermediate crude futures (WTI) saw a 0.34% increase to $77.3.
Premiums for Prompt Futures Impacting Brent and WTI Contracts
The Brent and WTI contracts experienced a 1.5% and 1.4% decline, respectively, from near three-week highs on Tuesday. The premium for prompt futures to the second-month contract more than doubled to $1.71 a barrel, encouraging energy companies to sell now rather than store product for future months. However, the premiums slid to 4 cents a barrel on Wednesday.
Range-Bound Crude Futures Prices Amid Risk Premium Embedded at Current Levels
Crude futures prices have become relatively range-bound, with a risk premium of at least $6-7 per barrel embedded at current levels. Vandana Hari, founder of oil market analysis provider Vanda Insights, suggests that prices could remain range-bound until the next turning point in the Gaza crisis.
Concerns Over Attacks in the Red Sea and Bab al-Mandab Strait
Attacks in support of the Palestinians on vessels in the Red Sea and Bab al-Mandab strait by Yemen’s Iran-aligned Houthis have continued to stoke concerns over freight flows through the critical waterway. Drone and missile strikes have hit at least four vessels since Friday.
Russia’s Pledge to Fulfill OPEC+ Quota Despite Decline in Oil Refining
Meanwhile, Russia, which has pledged output cuts of 500,000 barrels per day (bpd) as part of a package of cuts with OPEC+, said on Tuesday that it intends to fulfill its OPEC+ quota in February despite a decline in oil refining. Refinery throughput in Russia has fallen by 7% since the start of the year.
Rate Cut Concerns Weighing on Oil Demand Outlook
Concerns that rate cuts by the Federal Reserve could take longer than thought have weighed on the outlook for oil demand. U.S. inflation data last week pushed back expectations for an imminent start to the Fed’s easing cycle, with economists now forecasting a cut in June.
U.S. Crude Inventories and Preliminary Poll Results
U.S. crude inventories were seen up last week, while distillates and gasoline stockpiles were seen dropping, according to a preliminary Reuters poll. Analysts estimated that crude inventories rose by about 4.3 million barrels in the week to Feb. 16.
