Oil rises as Middle East tensions offset economy concerns

LONDON: Oil rose around 1% on Wednesday in a second day of gains as Middle East supply concerns arising from the Israel-Hamas war and the shutdown of a top Libyan oilfield offset rising U.S. output and worries about economic growth.

A report from industry group the American Petroleum Institute added further support as it showed a bigger-than-expected drop in crude inventories in the world’s biggest oil consumer, but this was offset by rising supplies of refined products.

Brent crude futures were up 72 cents, or 0.9%, to $78.31 per barrel at 1442 GMT, after earlier falling as low as $77.00. U.S. West Texas Intermediate crude futures added 77 cents, or 1.1%, to $73.01.

Oil prices climb on ME crisis, Libya outage

“The first few weeks of trading in a new calendar year often produces this kind of choppy price action,” said Ole Hansen of Saxo Bank.

“While supply disruptions remain an unrealised threat, the physical market is showing signs of actual weakness, basically reducing the geopolitical risk impact,” he added.

While the Organization of the Petroleum Exporting Countries and allies are cutting production to bolster the market, U.S. crude production will hit a record high in 2024, the Energy Information Administration said on Tuesday.

Europe’s weak economic outlook weighed on the demand outlook. The euro zone may have been in recession last quarter and prospects remain weak, European Central Bank Vice President Luis de Guindos said on Wednesday.

Crude on Tuesday gained about 2% after losses on Monday of more than 3%. On Sunday Libya’s National Oil Corporation (NOC) declared force majeure at its Sharara oilfield, which can produce up to 300,000 barrels per day.

“It would appear the market is well supplied at the moment which is keeping prices near the recent lows,” said Craig Erlam, analyst at brokerage OANDA. “Nothing we’ve seen in recent weeks changes that, which is why markets have been choppy but ultimately not moved very far.”

More attacks on shipping in the Red Sea by Yemen’s Houthi in support of the Palestinians on Tuesday and potential disruptions to oil tanker flows in the area also lent support.

After Tuesday’s API report, official U.S. inventory figures from the Department of Energy will be in focus at 1530 GMT to see if they show the same pattern of stock changes.