Crude oil bulls and bears are in a tug-of-war! Which can prevail between risk premium and demand concerns?
The U.S. has hinted that it will take additional measures against the Houthis, but the reopening of Libya's largest oil field and the deteriorating demand outlook have made it difficult for bulls and bears to act rashly......
On Monday, international crude oil fell as much as 1% on the day as OPEC member Libya restarted production at its largest oil field and is now close to flat.
The Libyan National Oil Company previously announced that the Sharara field, which produces about 270,000 barrels per day, will resume production after a three-week shutdown. The move boosted global supply and masked traders' fears that tensions in the Red Sea could trigger supply disruptions.
Meanwhile, elsewhere in the Middle East, traders expect long-term disruptions to shipping in the Red Sea and the Suez Canal as the United States tries to stop Iranian-backed Houthi rebels in Yemen from attacking ships. Jon Finer, the White House's chief deputy national security adviser, said it would take time to take military action to stop Houthi attacks, suggesting that Washington could take additional steps in the coming days.
In Europe, a fire at the plant of Novatek PJSC, Russia's largest producer of liquefied natural gas, in the Baltic Sea port of Ust-Luga over the weekend, disrupted fuel production. The Ukrainian media believe that the fire is related to the Kiev special services. As the Russia-Ukraine conflict approaches its second anniversary, the incident has once again drawn attention to the conflict.
Since the beginning of this year, crude oil prices have been trying to find a direction, alternating between rising and falling one week. This tug-of-war pattern is driven by the impact of tensions in the Middle East, including the war between Israel and Hamas in the Gaza Strip, offset by expectations that the oil market will remain adequately supplied.
Vandana Hari, founder of Singapore-based analytics firm Vanda Insights, said the oil market had considered the impact of shipping disruptions in the Red Sea and the Israeli-Hamas conflict. "In the absence of any major escalation of the situation, crude oil will be range-traded and will face some downward pressure," she said. ”
IG analyst Tony Sycamore said, "Despite the ongoing geopolitical tensions in Europe and the Middle East, oil prices remain depressed, which speaks volumes about the current sentiment in the oil market."
"Fundamentals remain a headwind for prices," he said, adding, "Oil production has increased, and the growth outlook for Europe is mixed at best, while this week's GDP data is expected to show that the U.S. economy has slowed significantly." ”
Expectations for several key economic data in the coming week have added to the nervousness of markets already worried about demand. In addition, severe cold weather across the U.S. has caused more disruptions, restricting travel across much of the country, suggesting softer demand in the world's largest fuel consumer. This concern is also exacerbated by the increase in US oil product inventories, which are updated weekly.
Last week, the International Energy Agency (IEA) highlighted an increase in oil production outside OPEC, while demand growth is slowing.