Oil prices edge higher as traders warn Middle East conflict could stoke volatility

Posted By: EN Todayon: February 06, 2024In: General Energy News, Oil & Gas News

Oil futures ticked higher in early trade Tuesday, remaining in consolidation mode after a rout the previous week that sent crude to three-week lows.

Traders continue to assess the potential threat to supplies from conflict in the Middle East after a series of weekend strikes led by the U.S. against Iran-backed paramilitaries and groups in retaliation for a drone strike last month that killed three U.S. troops. The strikes also hit Iran-backed Houthi militants in Yemen, who vowed to strike back.

Price moves

West Texas Intermediate crude for March delivery
CL00,
+0.59%

CL.1,
+0.59%

CLH24,
+0.59%
rose 6 cents, or 0.1%, to $72.84 a barrel on the New York Mercantile Exchange.
April Brent crude
BRN00,
+0.65%

BRNJ24,
+0.65%,
the global benchmark, was up 13 cents, or 0.2%, at $78.12 a barrel on ICE Futures Europe.

Market drivers

“We note that disruptions to oil production due to the war between Israel and Hamas have so far been limited, but renewed attacks on U.S. bases in Syria on Monday point to ongoing risks of an escalation, which will likely trigger volatility in oil prices ahead,” analysts at UBS wrote in a Tuesday note.

U.S. Secretary of State Antony Blinken returned to the Middle East this week, meeting Monday with Saudi Arabia’s crown prince as he attempted to foster progress toward a ceasefire between Israel and Hamas. Signs of progress toward a ceasefire agreement — that would also set the release of Israeli hostages held by Hamas — contributed to last week’s rout in crude prices.

The UBS analysts noted that estimates showed crude production by the Organization of the Petroleum Exporting Countries down by 410,000 barrels a day in January, the biggest monthly fall since July.

The decline was attributed to the voluntary OPEC+ production cuts, as well as the temporary shut-in of Libya’s largest oil field. Meanwhile, U.S. crude output likely fell by around 300,000 barrels a day last month due to cold weather, they said.

“So, we continue to advise investors with a high risk-tolerance to sell Brent’s downside price risks, or to add exposure to longer-dated Brent oil contracts,” the UBS analysts wrote. “Against the current uncertain backdrop, oil and energy stocks can also be utilized to insulate portfolios from market risks.”