In response to escalating tensions in the Middle East and a supply disruption in Libya, oil prices rebounded by approximately 2% on Tuesday, recovering from the significant losses incurred the previous day.
Brent crude futures saw a settlement increase of $1.47, or 1.9%, reaching $77.59 per barrel. Similarly, U.S. West Texas Intermediate crude (WTI) experienced a $1.47, or 2.1%, gain, concluding at $72.24.
The closure of Libya’s Sharara oilfield, producing 300,000 barrels per day (bpd) and frequently targeted by local and broader political protests, provided support to oil prices. Simultaneously, concerns over the ongoing conflict between Israel and Hamas in the Middle East raised apprehensions of a potential regional crisis disrupting oil supplies.
The Israeli military’s announcement that its fight against Hamas would persist through 2024 heightened these concerns. Additionally, attacks by Iran-aligned Houthi militants in the Red Sea prompted major shipping companies to avoid the region. However, the impact on oil tanker movements was less significant than initially anticipated, according to a Reuters analysis.
Despite these geopolitical factors, some major shipping companies are opting for routes to the United States, where crude oil prices are comparatively lower than Brent, noted Bob Yawger, director of energy futures at Mizuho.
Monday witnessed a 3% decline in Brent and a 4% drop in WTI following substantial cuts to Saudi Arabia’s official selling prices (OSP), leading to concerns about both supply and demand.
On a positive note, oil futures received support on Tuesday with Saudi Arabia expressing its commitment to stabilizing oil markets. Reports of Russia scaling back its crude oil production level in December were also cited as contributing to the market’s strength. Russia is part of the OPEC+ group of oil producers that collectively agreed to reduce production by approximately 2.2 million bpd.
In the U.S., the Energy Information Administration (EIA) predicts record-high crude production over the next two years, albeit at a slower growth rate due to efficiency gains offsetting a decline in rig activity. The anticipated output is set to rise by 290,000 bpd, reaching a record 13.21 million bpd in the current year.
In terms of inventory, crude stocks reportedly decreased by 5.2 million barrels in the week ending January 5, according to sources citing American Petroleum Institute figures on Tuesday. Official government data on stockpiles is expected on Wednesday.
The market’s attention will also turn to core U.S. inflation data on Thursday, adding another layer of scrutiny to factors influencing oil prices in the days ahead.