Oil prices rose on Monday due to renewed geopolitical tensions in the Middle East, raising concerns about the supply from the region. However, uncertainty surrounding OPEC+ voluntary output cuts and the global fuel demand growth continues to cloud the sector’s outlook.
Brent crude futures increased by 0.4% to reach $79.16 a barrel, while U.S. West Texas Intermediate crude futures were at $74.36 a barrel, up by 0.4% as well.
IG markets analyst Tony Sycamore stated, “A re-emergence of geopolitical tension over the weekend has come to the aid of an ailing crude oil price on the reopen this morning.”
“Simmering tensions appear to be rising to the surface again in the Middle East, in response to Israel’s renewed attacks in Gaza,” Sycamore added.
Geopolitical tension escalated as fighting resumed in Gaza and three commercial vessels came under attack in international waters in the southern Red Sea. The U.S. military reported the attacks, while Yemen’s Houthi group claimed drone and missile assaults on two Israeli vessels in the area.
CMC Markets analyst Tina Teng mentioned that the resumption of the Israel-Hamas war fueled the bullish momentum for oil prices. However, Teng also expressed concerns about China’s disappointing economic recovery and the ramp-up of U.S. production, which may continue to put pressure on oil prices.
According to energy services firm Baker Hughes, U.S. oil rigs rose to their highest level since September, with 505 rigs recorded this week. Despite this, oil prices are recovering from a decline of more than 2% last week due to investor skepticism about the depth of supply cuts by OPEC+ and concern about sluggish global manufacturing activity.
Analysts at RBC Capital, including Mike Tran, noted that prices will likely remain volatile and potentially directionless until clear data points pertaining to the voluntary output cuts are available, which may take up to two months.
Western countries have also intensified efforts to enforce the $60 a barrel price cap on seaborne shipments of Russian oil imposed to punish Moscow for its war in Ukraine. In addition, Washington imposed additional sanctions on three entities and three oil tankers on Friday.
Meanwhile, the White House announced that it was prepared to “pause” sanctions relief for OPEC member Venezuela unless there is further progress on the release of Venezuelan political prisoners and “wrongfully detained” Americans. At the same time, India has resumed Venezuelan oil purchases.
(Reporting by Florence Tan; Editing by Sonali Paul)
