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Oil firms as geopolitical woes continue to stoke supply concerns

(Montel) Oil firmed for a second consecutive day on Tuesday as geopolitical tensions sparked by the war in the Middle East and Ukraine lent support despite fears of wider global economic concerns affecting demand.

The front-month contract for Brent crude North Sea oil was last seen up USD 0.13 at USD 78.12/bbl, while the WTI equivalent was USD 0.14 higher at USD 72.92/bbl.

Both benchmarks lost around 7% last week, as anticipation of a ceasefire in the Israel-Hamas war drove “some of that weakness”, said ING analysts in a note.

“However, for now, a ceasefire does not appear imminent.”

Supply disruptions?
Indeed, US and UK airstrikes carried out against Iran-backed Houthi rebels in the oil-rich region over the weekend drove concerns of supply disruptions, said market participants.

“Recent US airstrikes could help to push oil prices upwards as traders anticipate potential retaliatory attacks from the Houthi rebels, which could delay global oil shipments,” oil market expert Ajay Parmar told Montel.

“The airstrikes also raise tensions with Iran, which could ultimately lead to a reduction in its oil supply.

“Either way, in all situations, additional unrest in the Middle East helps provide some upwards momentum to crude,” added Parmar.

Meanwhile, the “implications of last week’s drone attack on a Russian oil refinery [have] become clearer”, said Australia’s ANZ bank in a note referring to the Russia-Ukraine war.

“The large Lukoil facility in Volgograd is offline due to a fire blamed on a Ukrainian drone attack.

“The move by Ukraine to attack targets that generate revenue for Russia suggests further disruptions are likely,” the bank added, with the facility capable of processing 300,000 bbl/day.

Economic concerns
Meanwhile, stoking economic concerns was the latest US jobs report on Friday, which showed 353,000 added in January, close to double the 185,000 economists were expecting.

This called into question “whether the US Fed will start to cut rates anytime soon”, said ING.

Comments from the US Federal Reserve chairman Jerome Powell during an interview late on Sunday also dampened expectations of a rate cut.

“We just want some more confidence before we take that very important step of beginning to cut interest rates,” he said during in an interview with 60 Minutes.

The prospect of high interest rates can have a dampening effect on economic growth and oil demand in major economies, leading to a decrease in oil prices.