Oil futures fell Monday, pulling back after a surge that saw both Brent and West Texas Intermediate crude end last week at their highs for February as Middle East tensions rose.
Price moves
-
West Texas Intermediate crude
CL00,
+0.09%
for March delivery
CL.1,
+0.09% CLH24,
+0.09%
fell 12 cents, or 0.2%, to $76.72 a barrel on the New York Mercantile Exchange. -
April Brent crude
BRN00,
-0.19% BRNJ24,
-0.19% ,
the global benchmark, was off 17 cents, or 0.2%, at $82.02 a barrel on ICE Futures Europe. -
March gasoline
RBH24,
+1.12%
added 0.9% to $2.3605 a gallon, while March heating oil
HOH24,
-1.23%
lost 1.1% to $2.9301 a gallon. -
Natural gas for March delivery
NGH24,
-0.27%
traded at $1.842 per million British thermal units, down 0.3%.
Market drivers
Both Brent and WTI rose more than 6% last week, with gains tied to worries over the potential escalation of the Israel-Hamas war. But worries appeared to ease somewhat to begin the week, Ewa Manthey and Warren Patterson, commodities strategists at ING, said in a note.
Iran’s foreign minister over the weekend said Tehran had held talks with Saudi Arabia about a political solution to hostilities in Gaza, Reuters reported, and has exchanged messages with the U.S. throughout the four-month Israel-Hamas war.
While there remains a “slim possibility of a ceasefire, the situation is tense, which should keep oil prices highly volatile and vulnerable to headline risk,” Fawad Razaqzada, market analyst at City Index and FOREX.com, said in a note to clients.
“‘The extent to which a risk premium should be applied to the Middle East situation remains uncertain, as oil supplies have yet to be significantly impacted by the crisis…’ ”
“The extent to which a risk premium should be applied to the Middle East situation remains uncertain, as oil supplies have yet to be significantly impacted by the crisis, aside from minor disruptions such as rerouting ships around the African continent,” he said. Consequently, even in the event of a ceasefire, he estimates the downside risk for oil to be “limited” to approximately 5% to 7%.
Meanwhile, trading volumes were relatively subdued due to the Lunar New Year holidays, which have closed Chinese markets, the analysts said.
Monthly oil reports from the Organization of the Petroleum Exporting Countries will be released on Tuesday, and from the International Energy Agency on Thursday.
“Attention will be paid to how they will revise their demand outlook in reaction to the global developments,” Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a daily note.
On one hand, “the strong U.S. economy and Chinese stimulus measures are positive for the demand dynamics and should support oil prices beyond the geopolitical tensions,” she said. On the other hand, the “significant retreat in global interest rate cut expectations weighs on global demand outlook.”
One thing is sure, said Ozkardeskaya: OPEC will “keep fighting to maintain oil prices, even as the U.S. pumps a record amount of oil to “counterweigh the price increases that OPEC needs so badly.”
