Markets Ignore War Drums: Stable Oil Prices Mock Middle East Tensions

9 Jan 2024 , 09:31 AM

After falling during the previous session, oil prices steadied in early trade on Tuesday as investors balanced concerns about increased OPEC supply and Middle East tensions against concerns about demand.

U.S. West Texas Intermediate crude futures increased by 6 cents, or 0.1%, to $70.83 per barrel, while Brent crude futures increased by 18 cents, or 0.2%, to $76.30 a barrel.

Due to OPEC supply growth and significant price reductions by Saudi Arabia, the world’s largest exporter, the benchmarks fell more than 3% and 4%, respectively, on Monday.

Still, there are worries regarding the Gaza War. The markets are concerned that the Israeli military’s declaration that it will continue to fight Hamas until 2024 will cause the conflict to escalate into a regional crisis that could disrupt Middle Eastern oil supplies.

After spending two days in meetings with Arab leaders about ending the war, U.S. Secretary of State Antony Blinken landed late on Monday in Tel Aviv to inform Israeli officials on his discussions.

However, OPEC oil output increased in December as increases in Angola, Iraq, and Nigeria outweighed ongoing cuts by Saudi Arabia and other members of the larger OPEC+ alliance, holding back price advances, according to a Reuters survey released on Friday.

The official selling price of Saudi Arabia’s flagship Arab Light oil to Asia was lowered to its lowest level in 27 months in February due to increased supply.

The dollar, which has been supporting prices, stopped rising on Tuesday as traders maintained their bets on a number of rate cuts by the Federal Reserve this year. Crude becomes more affordable for holders of other currencies as the dollar declines, which raises oil prices.

On Monday, Federal Reserve Governor Michelle Bowman expressed her view that U.S. monetary policy is now ‘sufficiently restrictive’ and hinted that she would be open to supporting future interest rate reductions when inflation starts to decline.

Later in the day, the market will be waiting on U.S. inventory data from the industry group American Petroleum Institute.

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