Oil prices experienced an uptick on Tuesday as investors assessed the implications of heightened tensions in the Middle East. Brent crude futures rose by 77 cents, or approximately 0.99%, reaching $78.92 per barrel at 1014 GMT, following a minor loss of 14 cents on Monday.
Meanwhile, US West Texas Intermediate crude saw an increase of 46 cents, or 0.63%, from Friday, reaching $73.14 per barrel, with US markets closed for a public holiday on Monday.
The focus on Tuesday centered on an escalating conflict in the Middle East, leading to increased volatility in oil futures. Craig Erlam of OANDA noted, “The brief spikes we’ve seen have highlighted the sensitivity in the market to events around the Red Sea.” Yemen’s Houthi movement announced plans to expand its targets in the Red Sea region to include U.S. ships, maintaining attacks following US-led strikes in Yemen. Consequently, more oil tankers sought to avoid the southern Red Sea.
Tensions in the region further intensified as Iran disclosed launching ballistic missiles at targets in Iraq and Syria on Tuesday, citing defense of sovereignty and counterterrorism.
Despite the geopolitical risk premium on oil prices, analysts suggested that unless production is disrupted, a ceiling might be reached. PVM analyst Tamas Varga commented, “In the absence of actual and palpable impact on oil output, prices will remain well within the current $72-$82 range.”
On the demand side, Chinese oil refiners actively sought crude oil cargoes for March and April delivery to bolster inventories, anticipating stronger demand in the second half of the year. However, uncertainty loomed over China’s near-term demand evolution after the country’s central bank left the medium-term policy rate (MLF) unchanged, contributing to lower Brent prices on Monday.
Investors awaited insights into the Federal Reserve’s potential interest rate cuts from a speech by Christopher Waller, scheduled for 1600 GMT on Tuesday.