Oil prices settled higher at the end of the first trading week of 2024 as supply concerns continue to rise on mounting tension in the Middle East and a disruption in production in Opec member Libya.
Brent, the benchmark for two thirds of the world’s oil, rose 1.51 per cent to close at at $78.76 a barrel. West Texas Intermediate, the gauge that tracks US crude, surged 2.24 per cent to settle at $73.81 a barrel.
Tension rose in the Middle East this week after twin blasts near the burial site of former Quds Force general Qassem Suleimani killed at least 84 people in Iran while a drone strike killed the deputy head of Hamas's political wing, Saleh Al Arouri, in Beirut.
The developments stoked concern that the war could spread across the region and disrupt oil supplies.
Hezbollah leader Hassan Nasrallah warned that a decision by Israel to enter a full-scale war with the Iran-backed Lebanese group “would be costly” and “without limits or constraints”.
“If war is launched against Lebanon, then Lebanese interests require that we take the war to the end,” he said in a television address on Thursday.
Houthi attacks on cargo vessels in the Red Sea and the disruption to Libya's production following protests at the Sharara and El-Feel oilfields also raised supply concerns.
“Oil markets, for now, seem to be looking through the elevated geopolitical tensions in the Middle East and Red Sea region,” said Edward Bell, senior director of market economics at Emirates NBD.
“Militant attacks on shipping in the Red Sea are not affecting production but [are] causing a rerouting of vessels to a much longer route around Africa. Attacks elsewhere in Iran and Iraq will also keep the geopolitical temperature high.”
As the Opec+ cuts take effect “we expect to see oil markets closer to balanced in [the first quarter] which amid geopolitical concerns over the security of supply should help put a floor under prices”, he added.
On November 30, the Opec+ alliance announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024.
Saudi Arabia, the world's largest oil exporter, will maintain its voluntary output cut of one million bpd until the end of March while Russia is expected to deepen its voluntary oil production cut to 500,000 bpd and extend it until the end of the first quarter of this year.
Meanwhile, oil prices are also being supported by signals from the US Federal Reserve that it is inclined to cut interest rates after making “clear progress” in taming inflation in the world's largest economy.
“We hold our forecast for Brent futures at an average of $85 per barrel for the first quarter,” Mr Bell said.
On Thursday, oil prices settled lower on massive weekly gasoline and distillate stock builds in the US, implying lower demand.
“Oil prices are on course for a positive weekly start to the year, as rising geopolitical tensions feed into supply-side fears,” Han Tan, chief market analyst at Exinity, told The National.
“Still, the darkening demand outlook is likely to cap oil’s potential for near-term gains.”
Brent is set to be kept rangebound between $70 and the low $80s per barrel, “until markets can get more clarity over the global supply-demand equation as the year progresses”, he said.
