Oil price creeps up as geopolitics counter demand concerns
Tuesday, 23 January 2024
LONDON, Jan 22 (Reuters): Oil prices edged higher on Monday as traders weighed the impact of wars in the Middle East and Ukraine on oil supply against economic headwinds pressuring global oil demand.
Brent crude rose 27 cents to $78.83 a barrel by 1334 GMT.
The front-month U.S. West Texas Intermediate crude futures contract for February delivery was up 35 cents at $73.76 a barrel in tepid trade with the contract set to expire on Monday. The more active March WTI contract was up 31 cents at $73.56.
"This morning's subdued reopen speaks volumes about current sentiment in the crude oil market despite ongoing geopolitical tensions in Europe and the Middle East," said IG analyst Tony Sycamore.
There are no signs of respite in Israel's offensive in Gaza while attacks by Iran-aligned Houthis on commercial vessels in the Red Sea have continued despite retaliatory measures from the United States.
The situation has served to tighten European and African crude markets and on Friday pushed the front-month Brent contract's premium to the six-month contract to its widest since November.
This so-called backwardation indicates a perception of tighter supply for prompt delivery.
Meanwhile, Russian energy company, Novatek has been forced to suspend some operations at its Baltic Sea fuel export terminal because of a fire, it said on Sunday, which Ukrainian media said was caused by a drone attack. The fire has been extinguished, local authorities said on Monday.
IG's Sycamore suggested that oil fundamentals will remain a headwind for prices.
Oil production is higher while the growth outlook in China and Europe is mixed at best and GDP data this week is expected to show the velocity of the US economy has slowed considerably, he said.
"Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the backfoot," said Tamas Varga of oil broker PVM.
The latest demand growth forecasts by the US Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day, though all three organisations expect demand growth to slow in 2025.
Separately, production at Libya's Sharara oilfield resumed on Sunday, state oil company NOC said, after protesters ended a sit-in that had halted output since early January.