Oil prices maintained their recent gains on Tuesday, following attacks on shipping in the Red Sea that have heightened concerns about supply disruptions.
Brent crude futures steadied at $82.52 a barrel, showing no change from the previous day, while U.S. West Texas Intermediate crude futures (WTI) inched up to $77.59 a barrel, marking a slight increase of 1 cent.
Tony Sycamore, an analyst at IG in Sydney, noted, “Worries over disruptions in the Red Sea for shipping have helped drive a recovery in crude oil prices overnight, countering the current impact of a more hawkish Federal Reserve, which is weighing on the demand side.”
The recent attacks, allegedly carried out by Iran-aligned Houthis in support of Palestinians, have led to higher freight rates and increased shipping times. According to U.S. Central Command, the Houthis attempted to launch a missile at the U.S.-flagged oil tanker Torm Thor in the Gulf of Aden on February 24, but the attempt was unsuccessful.
President Joe Biden expressed hope on Monday for a ceasefire in the Israel-Hamas conflict in Gaza to begin by the following Monday. However, public statements from both Israel and Hamas indicate significant gaps in their positions regarding a potential truce, with each side blaming the other for delays.
Oil prices rose more than 1% on Monday, following declines of 2%-3% in the previous week, as market participants adjusted their expectations regarding the timing of potential interest rate cuts.
Kansas City Federal Reserve Bank President Jeffrey Schmid, in his inaugural policy speech on Monday, indicated that he shares the sentiment of most central bank policymakers in not rushing to reduce interest rates. Typically, high borrowing costs can dampen economic growth and oil demand.
Oil prices received further support on Tuesday from signs of improved demand in China.
Analysts from ANZ Bank noted, “Concerns regarding Chinese demand are diminishing as refineries continue robust purchasing in the physical market following increased travel during the Lunar New Year. This is despite their plans for more maintenance shutdowns than usual.”
A significant market focus for the day will be the release of the American Petroleum Institute industry group’s weekly data on U.S. crude inventories, scheduled for 4:30 p.m. EST (2130 GMT).
According to analysts surveyed by Reuters on Monday, crude inventories are estimated to have increased by approximately 1.8 million barrels in the week ending February 23rd.