Technology

Oil Prices Rise on Growing Concern Over Supply Disruption

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Limited Supply from Russia and Iran Due to Western Sanctions

Oil prices have settled higher on Tuesday, driven by concerns over limited supply from Russia and Iran due to Western sanctions. The Brent crude futures settled at $77.05 a barrel, up 75 cents, or 0.98%. Meanwhile, U.S. West Texas Intermediate (WTI) crude finished at $74.25 a barrel, up 69 cents, 0.94%.

Traders Eye Chinese Stimulus Plans to Drive Growth

According to Forex market analyst Razan Hilal, traders are looking to the Chinese stimulus plans to drive growth as supplies are tight following the Christmas and New Year’s holidays. "While the market is currently range-bound, it is recording gains on the back of improved demand expectations fueled by holiday traffic and China’s economic pledges," Hilal said in a morning note.

However, Hilal added that the primary trend remains bearish. This mixed outlook suggests that oil prices may be volatile in the coming days, with some market participants expecting further price increases while others anticipate a decline.

Iran’s Oil Exports to China Face Supply Disruption Risks

Some market participants have apparently started to price in small supply disruption risks on Iranian crude exports to China. This development has led to increased demand for Middle Eastern oil, reflected in a rise in Saudi Arabia’s February oil prices to Asia. This marks the first such increase in three months.

Shandong Port Group Bans U.S.-Sanctioned Oil Vessels

In related news, on Monday in China, Shandong Port Group issued a notice banning U.S.-sanctioned oil vessels from its network of ports. Three traders said that this move potentially restricts blacklisted vessels from major energy terminals on China’s east coast.

Shandong Port Group oversees large ports on China’s east coast, including Qingdao, Rizhao, and Yantai, which are major terminals for importing sanctioned oil. This development is significant as it may impact the global supply of oil, particularly in the Asia-Pacific region.

Cold Weather Boosts Heating Oil Demand

Meanwhile, cold weather in the U.S. and Europe has boosted heating oil demand. However, 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.

Higher inflation in Germany raised suggestions that the ECB may not be able to cut rates as fast as hoped across the euro zone. This mixed outlook on economic growth and monetary policy suggests that oil prices may remain volatile in the coming days.

Technical Indicators Suggest Oil Prices May Be Due for a Correction

Technical indicators for oil futures are now in overbought territory, suggesting that sellers are keen to step in again to take advantage of the strength. This could temper additional price advances and lead to a correction in the oil market.

Market participants await more economic data, including the U.S. December non-farm payrolls report on Friday. They will be closely watching this release for any signs of weakness or strength in the labor market, which may impact demand for oil.

Demand Exceeds Supply, Leading to Drop Downs in Inventories

According to Phil Flynn, senior analyst with the Price Futures Group, "We have a very tight physical market and see demand exceeding supply. That should lead to more drop downs of inventories around the globe."

Flynn’s comments suggest that the oil market is facing significant challenges due to limited supply and robust demand. This dynamic may continue in the coming days, leading to higher prices for oil.

Market Participants Weigh in on Oil Price Outlook

Market participants are closely watching economic data releases, including the U.S. December non-farm payrolls report on Friday. They will be analyzing these numbers for any signs of weakness or strength in the labor market and its impact on demand for oil.

In conclusion, oil prices have settled higher on Tuesday due to concerns over limited supply from Russia and Iran due to Western sanctions. Market participants are closely watching economic data releases and technical indicators for any signs of a correction in the oil market. As always, investors should remain vigilant and adapt their investment strategies accordingly.