A person puts gas in a vehicle at a gas station in Manhattan, New York City, U.S., Aug 11, 2022. REUTERS/Andrew Kelly/File photo
SINGAPORE – Oil prices rose in early trade on Tuesday as escalating geopolitical tensions in the Middle East continued to fuel supply concerns.
Brent crude futures rose 25 cents, or 0.3 percent, to $82.65 a barrel by 0105 GMT. U.S. West Texas Intermediate crude was up 31 cents, or 0.4 percent, at $77.09 a barrel.
Both the contracts fell over $1 on Monday as a deepening real estate crisis fueled Chinese demand worries, after a Hong Kong court ordered the liquidation of property giant China Evergrande Group.
READ: Oil drops as China demand concerns counter supply jitters
But analysts say the market remains on edge amid mounting oil supply worries, as Washington vowed to take “all necessary actions” to defend its troops following a deadly drone attack in Jordan by Iran-backed militants, the first U.S. military deaths since the Israel-Gaza war began.
“If U.S.-Iran tensions escalate, particularly through a direct confrontation, the risk rises that Iran’s oil supply is adversely impacted. Iranian’s oil exports are likely the most vulnerable via potentially greater enforcement of sanctions,” said Commonwealth Bank of Australia analyst Vivek Dhar in a note.
Iran exported 1.2-1.6 million barrels per day of crude oil through most of 2023, Dhar added, representing 1-1.5 percent of global oil supply.
Red Sea attacks
“How Iran responds to rising U.S. tensions will also dictate the course for oil markets. The key concern is Iran threatening a blockade of the Strait of Hormuz, which sees the transit of 15-20 percent of global oil supply,” he added.
Additionally, an attack on a Trafigura oil tanker in the Red Sea over the weekend has raised the risks around supply disruptions, while the risk of the U.S. getting dragged into the conflict is also rising, said ANZ analysts in a note.
“Traders have started covering short positions; but long positions have increased marginally, highlighting a lack of conviction for the moment,” they added.
READ: Oil ticks up as markets weigh Middle East tensions, supply forecasts
Oil’s price gains also come ahead of a Federal Reserve rate decision, as the Federal Open Market Committee (FOMC) starts a two-day meeting on Tuesday.
Policymakers are expected to hold interest rates steady, but some investors believe the U.S. central bank could drop its hiking bias.
Meanwhile, U.S. crude oil and distillates inventories were expected to have fallen last week while gasoline stocks were seen rising, a Reuters poll showed.
The American Petroleum Institute industry group will publish U.S. stockpiles data on Tuesday at 4:30 pm EST (2130 GMT), while data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due at 10:30 a.m. EST (1530 GMT) on Wednesday.