Oil surges on rate cuts, Red Sea tensions

21 Feb 2024 , 10:26 AM

In early Asian trading on Wednesday, oil prices gained some ground as investors balanced lower expectations for U.S. rate cuts against worries about output cuts by major producers and attacks on shipping in the Red Sea.

U.S. West Texas Intermediate (WTI) oil futures were up 9 cents, or 0.12%, at $77.13, while Brent crude futures increased 12 cents, or 0.15%, to $82.46 barrel. On Tuesday, the WTI and Brent prices fell 1.4% and 1.5%, respectively.

A request for an emergency humanitarian truce was blocked on Tuesday as Washington once more vetoed a draft resolution on the Israel-Hamas conflict by the UN Security Council. Instead, the United States is urging the Security Council to approve a resolution linking a cease-fire to Hamas’s release of Israeli hostages.

Concerns regarding freight movements via the vital waterway have continued to be raised by attacks in support of the Palestinians by Yemen’s Houthis, who are affiliated with Iran, on vessels in the Red Sea and Bab al-Mandab strait. Since Friday, at least four vessels have been struck by missile and drone strikes.

In the meantime, Russia announced on Tuesday that it plans to meet its quota for the Organization of Petroleum Exporting Countries and its allies (OPEC+) in February even if oil refining is declining. Russia had committed to reducing output by 500,000 barrels per day (bpd) as part of a package of cuts with these countries.

Russia’s energy minister said on Tuesday that refinery throughput has decreased by 7% since the year’s beginning as a result of facilities being harmed by drone assaults from Ukraine.

The estimate for oil demand has been negatively impacted by worries that the Federal Reserve may not reduce rates as quickly as anticipated. The latest data on U.S. inflation has dampened expectations for an early beginning of the Fed’s easing cycle; economists surveyed by Reuters now predict a June decrease. 

Preliminary data from Reuters revealed on Tuesday that U.S. crude stocks were seen to have increased last week, while distillates and gasoline stockpiles were considered to have decreased.

In the week leading up to February 16, analysts surveyed by Reuters predicted that oil stocks increased by an average of almost 4.3 million barrels.

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