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- Commodities
Oil rises due to crisis in the Middle East
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Key points:
- Oil prices rose on Tuesday after falling more than 1% in the previous session.
- Escalating geopolitical tensions in the main producing region of the Middle East have once again heightened supply concerns.
- Both contracts fell more than $1 on Monday as a deepening real estate crisis fueled concerns about demand from China.
Oil prices rebounded on Tuesday after experiencing a more than 1% drop in the previous trading day. The renewed rise in oil prices was spurred by heightened concerns about supply disruptions as geopolitical tensions in the Middle East intensified.
Brent crude futures regained 7 cents, or 0.07%, to settle at $82.46 per barrel. West Texas Intermediate crude advanced 15 cents, or 0.31%, to close at $76.93 per barrel.
Both contracts had plunged more than $1 on Monday as concerns about demand from China, the world’s largest crude oil consumer, intensified following a Hong Kong court’s decision to liquidate China Evergrande Group, a major real estate developer.
The geopolitical situation remains tense
“Oil prices above US$80 a barrel again suggest some geopolitical risk premium as tensions continue in the Middle East region. This could fade within a week or two unless there is a strong US response,”
– said a representative of DBS Bank. Energy Sector Group Leader Suvro Sarkar.
“If the situation develops into a confrontation between the US and Iran and tightening sanctions, then we expect that oil will be maintained in the range of US$80-100 per barrel for some time.”
As expected, oil prices are experiencing volatility amidst the heightened geopolitical tensions. The US government’s pledge to take “all necessary actions” to protect its troops following a deadly drone attack in Jordan by Iran-backed militants has caused markets to enter crisis mode. The attack, which resulted in the first US military fatality since the conflict between Israel and the Gaza Strip began, has amplified concerns about potential supply disruptions and further escalation of tensions.
“If tensions between the US and Iran escalate, especially through direct confrontation, there is an increased risk that Iranian oil supplies will be adversely affected. Iranian oil exports are likely the most vulnerable due to potentially stricter sanctions enforcement,”
– said Commonwealth Bank of Australia analyst Vivek Dhar.
What is the situation with supply on the market?
While the upcoming OPEC+ meeting on February 1 is not expected to finalize the group’s oil production plan for April, analysts are hoping for some insights into the decision-making process.
Amidst concerns about future demand, Saudi Aramco, the state-owned oil company of the world’s largest oil producer, has been instructed by the Energy Ministry to maintain its maximum sustainable production capacity at 12 million barrels per day and refrain from further expansion beyond 13 million barrels. This decision reflects Saudi Arabia’s cautious approach to oil production, balancing the need to meet global demand with the potential for oversupply and the impact on future oil prices.
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