Red Sea Risks Impact Oil Market: Prices Hold Steady Amid
On February 27, oil markets sustained gains from the prior day amidst heightened concerns about global supply due to attacks on shipping in the Red Sea. Brent crude futures experienced a marginal decline of 1 cent, settling at $82.52 per barrel, while U.S. West Texas Intermediate crude futures (WTI) increased by 1 cent to reach $77.59 per barrel.
The attacks, orchestrated by the Iran-aligned Houthis in support of Palestinians, have disrupted freight rates and extended shipping times. The recent incident involving the Houthis attempting to launch a missile at the U.S.-flagged oil tanker Torm Thor in the Gulf of Aden on February 24 has escalated tensions in the region.
U.S. President Joe Biden expressed optimism about a ceasefire in the Israel-Hamas conflict in Gaza by the upcoming Monday. However, public statements reveal a significant divergence between Israel and Hamas regarding the potential for a truce, adding a layer of uncertainty to the situation.
Both oil, Brent crude, and WTI benchmarks increased over 1% on Monday, reversing the declines observed in the preceding week. Market sentiments, influenced by the perceived delay in potential interest rate cuts, contributed to the recent market fluctuations.
In a noteworthy debut speech on policy, Kansas City Federal Reserve Bank President Jeffrey Schmid signaled a cautious approach to interest rate cuts, aligning with the prevailing stance among central banking colleagues. The reluctance to hastily reduce rates stems from concerns about high borrowing costs, which are often associated with a downturn in economic growth and can consequently impact oil demand.
Oil prices on Tuesday found support from indications of an improved demand scenario in China. Despite lingering concerns about Chinese demand, refineries exhibited robust buying activity in the physical market, particularly after the heightened Lunar New Year travel period, even in the face of planned maintenance halts.
A significant focus point will be the release of the American Petroleum Institute’s weekly data on U.S. crude inventories at 4:30 p.m. EST (2130 GMT). The ongoing geopolitical tensions and their potential impact on global oil supply and demand dynamics are expected to keep the oil market on edge in the coming days. Investors and analysts will keenly monitor developments in the region and economic indicators to gauge the trajectory of oil prices in this complex and fluid landscape.
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