The oil prices witnessed a marginal jump on Monday as the conflict in the Middle East displayed no signs of easing and the drone strikes by Iran-aligned Houthis continue on commercial vessels in the Red Sea. The Russia-Ukraine war is also contributing to the volatility in the oil market as Russian energy company Novatek reported a fire at one of its fuel export terminals forcing the company to partially suspend operations. The reports suggest that the fire was due to a Ukrainian strike.
Brent crude experienced a 90-cent increase, reaching $79.46 per barrel by 1450 GMT. Simultaneously, the front-month US West Texas Intermediate crude futures contract for February delivery saw a $1.10 rise, reaching $74.42 per barrel in subdued trading conditions as the contract approached its Monday expiration. The March WTI contract, which was more actively traded, rose by 91 cents to reach $74.16.
The experts have suggested that the oil fundamentals will continue to drag on the prices as the world’s growth outlook remains uncertain. China’s and Europe’s economic indicators displayed mixed results while the US economy is also expecting to record a slowdown.
What’s driving crude oil prices?
– The Israel-Hamas war in the Middle East and the Russia-Ukraine war continue to remain the elephant in the room. The war in both regions is intensifying with time and is expected to create more volatility in the oil market.
– The most recent projections for demand growth in 2024 provided by the US Energy Information Administration, the International Energy Agency, and the Organization of the Petroleum Exporting Countries vary significantly, spanning a range from 1.24 million to 2.25 million barrels per day.
– “Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the back foot,” Tamas Varga of oil broker PVM told Reuters.
– The attacks by Houthi militants against commercial vessels in the Red Sea are another major factor driving the crude oil prices as shipments are forced to take the longer, expensive route.
Where are prices headed?
The geopolitical order is better from the previous week as Pakistan and Iran have decided to resolve their issues with diplomacy. The Israel-Hamas war is constantly threatening to erupt into a large-scale war that will disastrously for the global economy.
“While oil prices have firmed up a little, it is strange that they have not risen further, given the rising geopolitical tensions in the Middle East,” said Gary Dugan, chief investment officer at Dalma Capital. “Part of the reason why oil prices have remained in check could be the market’s anticipation that global growth is slowing,” Gary added.
The resumption of production at Libya’s Sharara oilfield was announced by the state oil company NOC on Sunday, following the conclusion of a sit-in by protesters that had led to a cessation of output since the beginning of January. The development is optimistic for the oil market and is expected to have smoothening effect on prices.
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