Oil prices surged by $1 on Tuesday, driven by concerns over the Middle East crisis and the ongoing fight against inflation. Brent crude futures saw an increase of 1.73%, reaching $77.44 per barrel, while U.S. West Texas Intermediate crude futures rose by 1.77%, reaching $72.02 per barrel.
The rise in oil prices came after a previous slide, as market analysts weighed tensions in the Middle East against demand worries and increasing OPEC supply. Geopolitical tensions in the region, coupled with an ongoing supply outage in Libya, provided support to prices on Tuesday.
Suvro Sarkar, the energy sector team lead at DBS Bank, noted, On the supply side, there are some bullish factors from the closure of Libya’s largest oilfield, which has affected around 0.3 million barrels per day of oil production.
The Middle East crisis and its potential to disrupt oil supplies further intensified concerns. Major shipping firms such as Germany’s Hapag-Lloyd continue to divert vessels around the Cape of Good Hope due to maritime attacks by Yemeni Houthi militants in the Red Sea.
Furthermore, the Israeli military’s announcement that their fight against Hamas in Gaza will continue through 2024 has raised concerns of a escalating regional crisis that could impact oil supplies in the Middle East.
U.S. Secretary of State Antony Blinken conveyed to Israeli leaders that there is still a chance of obtaining acceptance from their Arab neighbors if a path to a viable Palestinian state is created, providing a potential solution to ease tensions.
The rebound in oil prices follows significant losses on Monday, resulting from Saudi Arabia’s sharp cuts to its official selling prices (OSP). Many are now questioning whether this move indicates potentially discord within OPEC+ and a possible increase in oil supply.
In terms of upcoming events that could impact the oil market, attention is focused on U.S. inventory data from the American Petroleum Institute industry group, which is due on Tuesday. Additionally, core inflation data to be released on Thursday will offer insights into the ongoing fight against inflation.
Federal Reserve Governor Michelle Bowman indicated on Monday that she views U.S. monetary policy as sufficiently restrictive and signaled her willingness to support eventual interest-rate cuts as inflation eases.
As the market awaits these crucial data releases, oil prices remain in the spotlight, with geopolitical tensions in the Middle East and the inflation battle shaping the direction of the market.
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