Oil prices rebounded in early trading on Tuesday after falling more than 1 percent in the previous session as rising geopolitical tensions in key producing regions in the Middle East fueled supply concerns.
Brent crude futures rose 17 cents, or 0.21%, to $82.57 a barrel by GMT 0401. West Texas Intermediate (WTI) crude was up 17 cents, or 0.22%, at $76.95 a barrel.
Both contracts fell more than $1 on Monday after real estate giant China Evergrande Group was ordered liquidated, as a deepening real estate crisis raised concerns about demand from China, the world’s largest consumer of crude oil.
The fact that the oil price is trading above US$ 80 per barrel is again priced in the geopolitical risk premium due to the continuation of flare-ups in the Middle East region.
Unless there is a strong reaction from the US, this situation may fade within a week or two. If the situation turns into a US-Iran conflict and tighter sanctions, the s range of $80-$100 per barrel can be expected to keep oil afloat for a while longer.
A deadly drone strike by Iran-backed militants in Jordan caused the first US military deaths since the start of the Israel-Gaza war and sent markets jittery. If US-Iran tensions escalate, especially through a direct conflict, there is an increased risk that Iran’s oil supplies will be negatively affected.
Iran exported 1.2-1.6 million barrels of crude oil per day through most of 2023, representing 1-1.5% of global oil supply. Iran’s oil exports would be one of the most vulnerable resources if potentially more sanctions were imposed.
Meanwhile, how Iran reacts to the rising tensions in the United States will also determine the course of oil markets. The main concern is that Iran is threatening to blockade the Strait of Hormuz, through which 15-20% of the global oil supply passes.
The gains also come ahead of the Fed’s interest rate decision as the Federal Open Market Committee (FOMC) begins its two-day meeting on Tuesday.
Policymakers are expected to keep interest rates steady, but some investors believe the U.S. central bank may abandon its trend of increasing interest rates.
Low-interest rates are positive for oil prices and could further increase demand.
Meanwhile, according to surveys, while crude oil and distillate stocks in the USA were expected to decrease last week, gasoline stocks were seen to increase.
Industry group the American Petroleum Institute (API) will release U.S. stockpile data at 2130 GMT on Tuesday, while the Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, will release data at 1530 GMT on Wednesday.