Brent gains some as Middle East tensions escalate

The front-month ICE Brent contract gained $0.32/bbl on the day, to trade at $82.07/bbl at 09.00 GMT.

PHOTO: Oil pump jacks. Getty Images

Upward pressure:

The Israel and Hamas conflict, which has gradually evolved into a broader geopolitical issue, has supported Brent's upward trajectory.

Brent prices moved higher after Yemen’s Houthis launched two airstrikes yesterday at a Marshall Islands-flagged cargo vessel, M/V Star Iris, transiting the Red Sea. The ship was carrying corn from Brazil and was en route to Iran, the US Central Command (CENTCOM) said.

Oil market analysts have indicated that potential actions by the US to escalate oil sanctions against Iran in response to its support for Houthis could lead to further price increases.

“Geopolitical incidents also provided support to crude prices despite the building inventory in the United States and low refinery utilization,” said SPI Asset Management’s managing partner Stephen Innes.

Meanwhile, Iraq’s oil minister Hayan Abdel-Ghani, reiterated on Monday that the country is committed to OPEC’s decisions on voluntary output cuts, Reuters reported. Iraq currently exports about 3.35–3.40 million b/d of oil, he said.

Downward pressure:

Speculations about potential interest rate cuts by the US Federal Reserve (Fed) this year have partially capped Brent's gains.

The Fed, in its January survey of consumer expectations, indicated that inflation forecasts for one year and five years ahead remained steady at 3% and 2.5%, respectively, Reuters reported. The surveyors are expecting a relatively stable inflation outlook, although both projections remain above the Fed's 2% target.

A higher-than-expected inflation rate could stop the Fed from cutting interest rates in its upcoming sessions and, in turn, dampen global oil demand. Data on US inflation will be out today, and the Euro Zone’s Gross Domestic Product (GDP) data is scheduled for Wednesday.

By Aparupa Mazumder

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