On Tuesday, oil prices experienced a slight increase due to concerns about potential disruptions in the Middle East that could affect the oil supply. However, gains were constrained by uncertainty regarding the timing of potential interest rate cuts in the US and the consequent impact on fuel demand.
At 0420 GMT, Brent futures inched up by 7 cents, or 0.1%, reaching $82.07 per barrel. Simultaneously, US West Texas Intermediate (WTI) crude increased by 10 cents, or 0.1%, reaching $77.02 per barrel.
Oil prices were nearly flat on Monday after rising 6% the previous week.
The conflict in the Middle East has kept prices high.
On Monday, Yemen’s Iran-aligned Houthis fired two missiles at a cargo ship bound for Iran in the Red Sea. Since mid-November, the group has actively targeted international vessels with commercial ties to the United States, Britain, and Israel. This is done in solidarity with Palestinians in the ongoing Israel-Hamas conflict.
The United States, aiming to tighten or increase enforcement of sanctions against Iran, would significantly impact oil market supplies. Consequently, this move could lead to notable shifts in the global energy landscape.
However, concerns about interest rates slowed price increases. In its January Survey of Consumer Expectations, the New York Fed reported that the outlook for inflation a year and five years from now remained unchanged. Both projections continue to exceed the Fed’s 2% target rate.
If inflation concerns delay Fed interest rate cuts, this may reduce oil demand by slowing economic growth.
On Tuesday, the United States is set to release inflation data. Meanwhile, on Wednesday, the United Kingdom and the eurozone are expected to unveil GDP data.
Market participants eagerly awaited U.S. crude inventory data scheduled for later on Tuesday. Four Reuters-polled analysts projected a rise of about 2.6 million barrels for the week ending February 9.
On Tuesday, the Organization of Petroleum Exporting Countries is scheduled to release its monthly oil market report. Additionally, on Monday, Iraq, an OPEC member, affirmed its commitment to the organization’s decisions, stating that it would not exceed the production limit of 4 million barrels per day (bpd).
“What will be more interesting in the coming weeks is what OPEC+ decides to do with their voluntary supply cuts, which expire at the end of March,” ING analysts wrote in a note on Tuesday.
“Our balance sheet suggests that the market will be in surplus in the second quarter of 2024 if the group fails to roll over part of these cuts.”
OPEC and its allies, including Russia, known as OPEC+, will decide in March whether to extend the voluntary oil production cuts in place for the first quarter.
In November, OPEC+ agreed to voluntary output cuts totaling approximately 2.2 million bpd for the first quarter of this year. Additionally, Saudi Arabia extended a 1 million bpd voluntary reduction as part of these measures.
Click here for more news on the economy.