Oil prices hold steady amid economic concerns despite Red Sea worries

Pump jacks of Wintershall DEA are pictured in Emlichheim near the northern German city of Meppen, Germany, March 9, 2022. REUTERS/Fabian Bimmer/File photo

Oil prices stabilized in early Asian trade on Wednesday after sharp moves earlier in the week, as markets weighed concerns about the U.S. economy and potential supply disruptions from ongoing tensions in the Red Sea.

Brent crude slipped 1 cent, or 0.01 percent, to $75.88 a barrel by 0300 GMT, while U.S. West Texas Intermediate crude futures rose 4 cents, or 0.06 percent, to $70.42 a barrel.

Oil prices had climbed around $2 earlier in the week following attacks on vessels in the Red Sea by Houthi rebels over the weekend and the reported arrival of an Iranian warship on Monday. A wider conflict could close crucial waterways for oil transportation and disrupt trade flows.

READ: Oil jumps 1% in New Year after U.S. forces repel Houthis in Red Sea

However, the market fell in the previous session as market optimism about early and aggressive U.S. interest rate cuts ebbed ahead of the release of Federal Reserve minutes and jobs data.

“Energy markets were unable to escape the broader pressure seen on risk assets with equity markets also weaker. The weakness in oil comes despite a ratcheting up in tensions in the Middle East,” said ING analysts in a client note.

Expectations of ample supply in the first half of 2024 have kept a lid on prices ahead of OPEC+ plans to hold a meeting of its Joint Ministerial Monitoring Committee (JMMC) in early February. An exact date has not been decided, three sources from the alliance said.

“While the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries,” said ING analysts.

“Given the scale of cuts we are already seeing, it will be increasingly difficult for the group to cut more if needed over the course of 2024,” they said, pointing to the fact that recent cuts have been driven by voluntary reductions, rather than group-wide cuts.

READ: Oil prices to end year 10% lower as demand concerns snap winning streak

Ahead of weekly U.S. crude and product inventory reports, analysts polled by Reuters expected crude stockpiles fell last week, while distillate and gasoline stocks likely rose.

Data from the American Petroleum Institute industry group is due at 4:30 p.m. (2130 GMT) on Wednesday, and data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due at 11:00 a.m. (1600 GMT) on Thursday, delayed by a day due to the New Year’s holiday on Monday.