Onome Amuge
Oil prices regained some ground on Tuesday, posting considerable gains following Monday’s six percent slide, as the U.S. plan to boost the Strategic Petroleum Reserve (SPR) provided a brief respite from broader concerns about slowing demand growth.
Brent crude futures rallied by 63 cents, or 0.88 percent, to reach $72.05 a barrel, while U.S. West Texas Intermediate (WTI) crude gained 58 cents, or 0.86 percent, to settle at $67.37 a barrel.
Monday’s session saw both contracts plunging to their lowest levels since October 1st after the retaliatory strike by Israel on Iranian targets last weekend failed to target Tehran’s oil infrastructure.
With no indications that either country intended to escalate the recent conflict, market attention swiftly shifted to concerns over deteriorating global oil demand growth for this year and the next.
Analysts like John Evans of oil broker PVM have remarked that, given the upcoming U.S. vote next week, Israel will likely confine its retaliatory actions to proxies rather than directly engaging with Iran.
While the immediate threat of an escalation in the conflict between Iran and Israel seems to have subsided for now, the underlying tensions remain high.Â
Esmaeil Baghaei, Iranian foreign ministry spokesperson, has warned that Iran will use all available tools to retaliate against Israel’s weekend attack.
Meanwhile, the U.S. has issued a warning to Iran at the United Nations Security Council, making it clear that any further acts of aggression against Israel or U.S. personnel in the Middle East will be met with severe consequences.
In another development that could influence the oil market dynamics, the U.S. announced that it was seeking to purchase up to three million barrels of oil for the Strategic Petroleum Reserve for delivery by May next year.
This move, according to some analysts, has the potential to introduce a significant buyer into the oil market, which has been lacking such players in recent times.
While the U.S. SPR announcement might provide a short-term boost to the oil market, Hiroyuki Kikukawa, president of NS Trading, a subsidiary of Nissan Securities, believes that the long-term trend for oil prices will be downward.
Kikukawa’s rationale is based on the fact that peak winter kerosene demand season in the Northern Hemisphere is still a while away, and demand from China, one of the major oil-consuming countries, remains weak.
U.S. crude oil and gasoline inventories are estimated to have increased last week, while distillate inventories are expected to have declined, according to a preliminary Reuters poll conducted on Monday.
These estimates will be confirmed or refuted when the American Petroleum Institute (API) and the Energy Information Administration (EIA) release their respective weekly reports on Tuesday and Wednesday respectively.
