The front-month contract for Brent crude North Sea oil was last seen down USD 0.11 at USD 81.52/bbl, while the WTI equivalent was USD 0.05 lower at USD 76.17/bbl.
Prices were dampened in early trading today after reports on Thursday that Russia has exported more crude than it planned to so far this month, which Akhtar Faruqui of FXStreet said could raise “challenges” to its commitment to reduce crude exports under its agreement with Opec+ allies.
Both contracts gained 3% yesterday as they closed up for a fourth consecutive session, with the Brent benchmark breaching USD 80/bbl for the first time in a week.
They were set to rise almost 5% this week, reversing last week’s losses of 7%.
On Thursday, Israel carried out airstikes on the southern Gaza city of Rafah bordering Egypt – where half of the Gazan population is sheltering in dire conditions – after Israeli prime minister Benjamin Netanyahu rejected Hamas’s latest proposal for a ceasefire.
This is despite warnings from the US that it would not support plans for major operations in Rafah without due consideration for refugees there and that a military offensive into the city without proper planning would be a “disaster”.
Meanwhile, a Hamas delegation arrived in Cairo yesterday for ceasefire discussions with mediators from Egypt and Qatar.
The catalyst for the oil rally “appears to be Israel refusing to agree to a ceasefire with Hamas”, said analysts at ING bank in a note. “But clearly, the concern now is we see further escalation.”
ANZ analysts added in a note that Israel’s dismissal “triggered a wave of buying amid heightened geopolitical risks”.
Strong refinery margins
The analysts also pointed to “strength” in US refinery margins as offering support. “Refined product draws in the US over the last week have been supportive for margins, while Red Sea disruptions and refinery outages also continue to provide support to refined product markets, particularly middle distillates.”
Total US motor gasoline stockpiles fell by 3.1m bbl last week and are about 1% below the five-year average, while distillate fuel inventories decreased by 3.2m bbl last week and are about 7% below the five-year average, data from the US Energy Information Administration showed late on Wednesday.
ANZ analysts pointed to the higher-than-expected drops in stocks as “signs of stronger demand”.
The US also remains the world’s biggest producer of oil, with production rising 0.3m to 13.3m bbl/day in the week ending 2 February.