Oil Settles Higher Amid Tight Supplies and Stronger Demand Expectations
On Tuesday, oil prices rose due to concerns over limited supply from major oil producers like Russia and Iran, as well as increased demand expectations fueled by holiday traffic and China’s economic pledges. According to Forex market analyst Razan Hilal, traders were looking to the Chinese stimulus plans to drive growth as supplies are tight following the Christmas and New Year’s holidays.
Brent Crude Futures and U.S. West Texas Intermediate (WTI) Crude Prices
- Brent crude futures settled at $77.05 a barrel, up 75 cents, or 0.98%.
- U.S. West Texas Intermediate (WTI) crude finished at $74.25 a barrel, up 69 cents, or 0.94%.
Market Participants Price in Small Supply Disruption Risks on Iranian Crude Exports to China
Some market participants have started to price in small supply disruption risks on Iranian crude exports to China, said UBS analyst Giovanni Staunovo. This is due to concerns over sanctions tightening supply and translating into increased demand for Middle Eastern oil.
Increased Demand for Saudi Arabian Oil
As a result of the supply disruptions, there has been an increase in demand for Saudi Arabian oil. In fact, Saudi Arabia’s February oil prices to Asia have risen for the first time in three months.
Restriction on U.S.-Sanctioned Oil Vessels in China
Shandong Port Group issued a notice banning U.S.-sanctioned oil vessels from its network of ports in China, potentially restricting blacklisted vessels from major energy terminals on China’s east coast. This includes large ports such as Qingdao, Rizhao and Yantai, which are major terminals for importing sanctioned oil.
Impact of Cold Weather on Heating Oil Demand
The cold weather in the U.S. and Europe has boosted heating oil demand, though oil price gains were capped by global economic data. Euro zone inflation accelerated in December, an expected blip that is unlikely to derail further interest rate cuts from the European Central Bank.
ECB Interest Rate Cuts and Inflation Expectations
Higher inflation in Germany raised suggestions that the ECB may not be able to cut rates as fast as hoped across the euro zone, said Panmure Liberum analyst Ashley Kelty. This means that oil prices may face downward pressure due to a decrease in demand from Europe.
Technical Indicators for Oil Futures and Market Expectations
Technical indicators for oil futures are now in overbought territory, which means that sellers are keen to step in again to take advantage of the strength, tempering additional price advances. As Harry Tchilinguirian, head of research at Onyx Capital Group, noted:
"Market participants await more economic data, including the U.S. December non-farm payrolls report on Friday."
Impact of Tight Supplies and Stronger Demand Expectations
We have a very tight physical market and see demand exceeding supply, said Phil Flynn, senior analyst with the Price Futures Group. This should lead to more drop downs of inventories around the globe.
Sources:
- Reuters
- Forex market analyst Razan Hilal
- UBS analyst Giovanni Staunovo
- Shandong Port Group
- Euro zone inflation data
- European Central Bank interest rate cuts
Related News:
- Oil Prices Rise Amid Stronger Demand Expectations and Tight Supplies
- Market Participants Price in Small Supply Disruption Risks on Iranian Crude Exports to China
- Restriction on U.S.-Sanctioned Oil Vessels in China Potentially Restricts Blacklisted Vessels from Major Energy Terminals
