Oil tries to regain footing as Middle East crisis, OPEC supply in focus

A view shows oil tanks of Transneft oil pipeline operator at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia Aug 12, 2022. REUTERS/Tatiana Meel/file photo

Oil prices steadied on Tuesday after sliding in the previous session, as markets weighed Middle East tensions against demand worries and rising OPEC supply.

Brent crude futures rose 17 cents, or 0.2 percent, to $76.29 a barrel at 0707 GMT, while U.S. West Texas Intermediate crude futures inched up 0.1 percent, or 5 cents, to $70.82 a barrel.

The benchmarks had fallen over 3 percent and 4 percent respectively on Monday on sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output.

“Saudi Arabia’s sharp price cuts and OPEC’s increased production have offset supply concerns caused by escalating geopolitical tensions in the Middle East,” said CMC Markets analyst Leon Li.

READ: Oil slips as higher OPEC supply, Saudi price cuts offset Mideast worries

On the Gaza war, the Israeli military has said its fight against Hamas will rage through 2024, worrying markets that the conflict could grow into a regional crisis that could disrupt Middle Eastern oil supplies.

U.S. Secretary of State Antony Blinken arrived in Tel Aviv late on Monday to brief Israeli officials on his two days of talks with Arab leaders on ending the war.

Holding back price gains however, a Reuters survey on Friday found that OPEC oil output rose in December as increases in Angola, Iraq and Nigeria offset continuing cuts by Saudi Arabia and other members of the wider OPEC+ alliance.

Higher supply had prompted Saudi Arabia to cut the February official selling price of its flagship Arab Light crude to Asia to the lowest level in 27 months.

Oil prices are likely to trade in a range between $75 and $80 per barrel in the near term, said Suvro Sarkar, energy sector team lead at DBS Bank, “barring an unforeseen flare up in the Middle East situation.”

“On the supply side, there are some bullish factors from the closure of Libya’s largest oilfield, which has affected around 0.3 million barrels per day of oil production,” he added.

READ: OPEC faces declining demand and shrinking market share in early 2024

Supporting prices, the dollar paused its rally on Tuesday, as traders reaffirmed their bets for a slew of Federal Reserve rate cuts this year. A weaker dollar boosts oil prices as crude becomes cheaper for holders of other currencies.

Federal Reserve Governor Michelle Bowman on Monday said she now sees U.S. monetary policy as “sufficiently restrictive” and signaled her willingness to support eventual interest-rate cuts as inflation eases.

The market is awaiting U.S. inventory data from the American Petroleum Institute industry group later in the day.