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Oil prices edge up on Middle East risk

An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo
An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan, November 13, 2023. REUTERS/Turar Kazangapov/File Photo

Oil prices rose slightly on Tuesday on fears Middle East tensions could disrupt supply, but uncertainty about the pace of potential US interest rate cuts and the ensuing impact on fuel demand capped gains.

Brent futures edged up 7 cents or 0.1 per cent higher to $82.07 a barrel at 0420 GMT. US West Texas Intermediate (WTI) crude rose 10 cents or 0.1 per cent to $77.02 a barrel.

Oil prices were near flat in Monday’s trade, after gaining 6 per cent last week.

The conflict in the Middle East has kept prices elevated.

Yemen’s Iran-aligned Houthis fired two missiles on Monday at an Iran-bound cargo ship in the Red Sea. The group has attacked international vessels with commercial ties to the United States, Britain and Israel since mid-November in solidarity with Palestinians over the Israel-Hamas war.

A move by the US to tighten or step up enforcement of sanctions on Iran would impact oil market supplies.

But worries about interest rates limited price gains. The New York Fed said its January Survey of Consumer Expectations showed the outlook for inflation a year and five years from now were unchanged, with both remaining above the Fed’s 2 per cent target rate.

If inflation worries delay Fed interest rate cuts, that could reduce oil demand by slowing economic growth.

US inflation data is expected on Tuesday, while British inflation and euro zone Gross Domestic Product data should land on Wednesday.

Market participants awaited industry data on US crude inventories due later on Tuesday. Four analysts polled by Reuters estimated on average that crude inventories rose by about 2.6 million barrels in the week to Feb. 9.

The Organization of the Petroleum Exporting Countries is also scheduled to release its monthly oil market report on Tuesday. OPEC member Iraq said on Monday it was committed to the organisation’s decisions and to producing no more than 4 million barrels per day (bpd).

“What will be of more interest in the coming weeks is what OPEC+ decide to do with their voluntary supply cuts which expire at the end of March,” ING analysts said in a Tuesday note.

“Our balance sheet suggests that the market will be in surplus in the second quarter of 2024 if the group fails to roll over part of these cuts.”

OPEC and its allies including Russia, known as OPEC+, will decide in March whether to extend voluntary oil production cuts in place for the first quarter.

In November, OPEC+ agreed to voluntary output cuts totalling about 2.2 million bpd for the first quarter of this year led by Saudi Arabia rolling over a 1 million bpd voluntary reduction.

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