Aug 6 2024: Oil prices steadied on Tuesday after earlier gains as concerns about escalating conflict in the Middle East and reduced output from Libya’s largest Sharara oilfield bolstered fears of tight supplies.
Brent crude futures inched up by 12 cents, or 0.16%, to $76.42 a barrel by 1001 GMT, while U.S. West Texas Intermediate crude futures increased by 22 cents, or 0.3%, to $73.16. Both contracts had risen over $1 a barrel earlier in the session.
Panmure Liberum analyst Ashley Kelty noted that “fears of a slowdown in the U.S. and weak growth in China are likely to weigh heavily on prices, with increased production from OPEC+ in Q4 adding another challenge for near-term price recovery.”
On Monday, both benchmarks fell approximately 1% as global stock markets were hit by concerns of a U.S. recession.
Oil prices received some support from rising concerns that Iran, a significant Middle Eastern oil producer, might retaliate against Israel and the U.S. following recent attacks. The assassination of a Hamas leader in Tehran and an Israeli strike that killed a Hezbollah commander in Lebanon have raised fears of a broader regional conflict.
Additionally, U.S. officials reported that at least five American personnel were injured in an attack on a military base in Iraq on Monday, though it remains unclear if the attack was connected to the recent threats of retaliation.
Despite these factors, weak demand forecasts, particularly from China, have limited price gains. “The anticipated seasonal increase in demand for Q3 seems disappointing, with gasoline and diesel usage falling short of initial optimistic projections,” said Harry Tchilinguirian, an analyst at Onyx Capital Group.
Saudi Aramco also reported a 3.4% decline in second-quarter profits due to reduced crude volumes and weaker refining margins. However, Aramco’s CEO highlighted significant growth in China and stated that the fundamentals do not justify a drop in oil prices.
In the U.S., data revealed a rebound in the service sector from a four-year low in July. Furthermore, a broader rally in Asian equity markets after a sharp decline on Monday provided additional support for oil prices.
Reduced production at Libya’s Sharara oilfield, which typically produces 300,000 barrels per day, further buoyed prices. Output at the field has dropped by around 20% due to protests.