Oil prices balance out as economic worries offset supply risks

Business a.m

Oil prices remained relatively stable in Asia on Wednesday morning, following the volatility of the previous few days. Traders were assessing the potential impact of the U.S. economy on oil demand, against the possibility of supply disruptions due to the ongoing tensions in the Red Sea.

Brent crude oil futures, the international benchmark, were trading at $75.88 per barrel as of Wednesday, down 1 cent or 0.01 per cent from the previous close. U.S. West Texas Intermediate (WTI) crude oil futures were down 8 cents or 0.11 per cent to $70.30 per barrel.

The attacks on commercial vessels in the Red Sea by Houthi rebels over the weekend and the arrival of an Iranian warship in the region on Monday had led to an increase in oil prices of about $2 per barrel earlier in the week. There are concerns that the situation in the region could escalate and disrupt oil shipments through the Red Sea, which is a major route for crude oil transport.

However, oil prices fell in the previous session, with the optimism around early and aggressive U.S. interest rate cuts fading ahead of the release of minutes from the Federal Reserve’s last meeting and the latest jobs data. According to Suvro Sarkar, energy sector team lead at DBS Bank, geopolitical risks are not being priced into the market at the moment, as the assumption is that a major conflict in the region will be avoided. Sarkar also noted that oil markets are expected to be choppy in the near term, but that prices are expected to be muted in the first quarter of this year compared to the second half of 2023.

The decision by OPEC+ to hold a meeting of its Joint Ministerial Monitoring Committee (JMMC) in early February has raised concerns that the group may be getting worried about the weakness in the oil market. The meeting comes after OPEC+ agreed to cut production by 2.2 million barrels per day (bpd) in the first quarter of 2023, a move that has failed to stabilise prices. Kevin Wong, a senior market analyst at OANDA, said that the lack of fresh catalysts is likely to keep oil prices range-bound in the short term.

In addition to the upcoming OPEC+ meeting, analysts will also be watching for the release of U.S. crude and product inventory data from both the American Petroleum Institute (API) and the Energy Information Administration (EIA). The API data is due later on Wednesday, while the EIA data is due on Thursday, delayed by one day due to the New Year’s holiday. Analysts surveyed by Reuters expect crude stockpiles to have fallen last week, while distillate and gasoline stocks are expected to have increased.