Feb 6, 2024: Early in U.S. trading on Tuesday, oil prices saw an uptick as market attention remained fixed on supply dynamics amidst escalating geopolitical tensions in Russia and the Middle East.
Brent oil futures for April delivery climbed 0.9% to $78.65 per barrel, while West Texas Intermediate (WTI) crude futures rose by the same margin to $73.53 per barrel as of 09:49 ET (14:49 GMT).
On Monday, both oil contracts rebounded approximately 1% following several strikes by U.S. forces against Iran-backed Houthis based in Yemen. These actions underscored sustained geopolitical unrest in the Middle East. Moreover, the U.S. issued warnings of potential further strikes against the Houthis after the group threatened to continue attacking vessels in the Red Sea. Heightened Houthi activity in the region has heightened concerns about potential disruptions to oil shipments to Europe and Asia, amplifying worries about tighter global supplies.
The ongoing conflict between Israel and Hamas, a central factor in the region’s instability, showed no signs of de-escalation, with reports of a ceasefire proving unsubstantiated.
Meanwhile, reports from Russia indicated that Ukraine had carried out drone strikes against one of the country’s largest oil refineries, raising concerns about impacts on oil product exports.
The possibility of reduced supplies may somewhat offset persistent worries over weakening oil demand in 2024, particularly amidst a tepid economic recovery in China and the prospect of sustained high interest rates in the United States. Concerns over sluggish demand contributed to oil prices dropping over 7% last week, effectively erasing gains made earlier in the year.
Additionally, doubts persist regarding the tightness of oil markets in 2024, fueled by record-high U.S. production and perceived insufficient output cuts from the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
This week, market focus remains on signals from Federal Reserve officials, especially after comments from Chair Jerome Powell indicated a stance favoring maintaining rates at restrictive levels in the near term.