2/6/2024

Oil stable amid Gaza negotiations

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Key points:

  • Oil prices have stabilized after rising on Monday.
  • Traders are monitoring attempts to resolve the situation in Gaza.
  • Price growth is expected to be limited due to high interest rates and problems in the Chinese economy.

On Tuesday, oil prices found stability as traders closely observed Antony Blinken’s visit to the Middle East, evaluating its potential impact on the Gaza conflict and the associated concerns regarding supplies from the crucial producing region.

Brent crude futures experienced a marginal decline of 8 cents, settling at $77.91 per barrel, while U.S. West Texas Intermediate crude futures saw a decrease of 13 cents, reaching $72.65. In the previous session, both contracts registered a nearly 1% increase, marking the first positive movement in four consecutive sessions.

Attempts at conflict resolution

On Monday, Blinken held discussions with the de facto ruler of Saudi Arabia. The Palestinians are optimistic that this visit could facilitate a truce to address the threat of an Israeli attack on Rafah, a border town where approximately half of the Gaza Strip’s population is seeking refuge.

The proposed ceasefire, presented to Hamas last week by Qatari and Egyptian mediators, is currently awaiting a response from the militants. They express a desire for additional assurances that the proposed truce will effectively conclude the ongoing four-month war.

Simultaneously, the United States persists in its efforts against the Iran-backed Houthis in Yemen. The Houthis’ attacks on commercial shipping have disrupted global oil trade routes, prompting continued U.S. engagement in countering these activities.

The issue of high supply remains relevant

Nevertheless, the forecast for price hikes is limited based on the demand outlook. Analysts indicate that the anticipation of “prolonged higher interest rates” in the United States and other nations may restrain consumption. Additionally, concerns persist about China’s ongoing economic challenges.

On the supply front, market participants are eagerly awaiting industry data on U.S. crude oil inventories scheduled for release later on Tuesday. Analysts project an average increase of approximately 2.1 million barrels in crude oil inventories for the week ending February 2.

BMI analysts conveyed in a note that they foresee the market maintaining a general equilibrium throughout the year, with a modest 3.4% increase in oil prices.

“However, we see risks to the outlook, both upside and downside, due to significant uncertainty about the strength of the global economy, the impact of the unfolding Red Sea crisis and the evolution of OPEC+ policy,”

— they said.

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