Middle East Tensions Fuel Oil Rally as Supply Uncertainties Linger

4 Jan 2024 , 10:02 AM

Oil prices climbed again on Thursday, extending Wednesday’s gains, as anxieties over Middle East supply disruptions and escalating regional tensions outweighed concerns about slowing demand. Both Brent crude and West Texas Intermediate (WTI) benchmarks advanced, marking the first sustained climb in five days.

Supply Jitters Take Center Stage:

• Libyan Field Shutdown: Protests abruptly halted production at Libya’s Sharara oilfield, capable of pumping up to 300,000 barrels per day, adding to existing supply uncertainties in the region.
• Red Sea Concerns: Houthi rebels in Yemen claimed targeting a container ship bound for Israel, raising shipping anxieties in the strategic Red Sea waterway.
• Lingering Israel-Hamas Conflict: Swirling regional tensions from the ongoing conflict between Israel and Hamas in Gaza continue to support oil prices.

Regional Tensions Add Heat:

• Beirut Blast: The slaying of Hamas’ deputy leader in Beirut fueled regional anxieties, particularly after Iran vowed retaliation against ‘terrorists’ responsible for the blasts.
• OPEC Cooperation Remains Uncertain: Following Angola’s departure from OPEC+, the alliance’s commitment to production cuts faces scrutiny at their upcoming February meeting.

Demand Concerns Linger:

Despite the upward pressure from supply worries and geopolitical tensions, concerns about a potential global economic slowdown in 2024 could dampen future demand for oil, capping price gains.

Data Watch:

• American Petroleum Institute data showed a larger-than-expected decline in U.S. crude stocks for the week ending December 29th, offering bullish support.
• Official U.S. inventory data from the Energy Information Administration is delayed by a day due to the New Year’s holiday and is expected on Thursday.

Outlook:

Oil prices are likely to remain volatile in the short term, oscillating between supply disruptions, geopolitical tensions, and demand concerns. The upcoming OPEC+ meeting and official U.S. inventory data will be closely watched for further clues about the market’s trajectory.