HOUSTON: Oil prices rose about 2% on Monday as traders weighed the impact of wars in the Middle East and Ukraine and extreme cold weather across North America on oil supply against a bullish US stock market signalled demand growth. Brent March crude futures rose $1.17, or 1.5%, to $79.73 a barrel by 10:41 a.m. CST (1641 GMT).
The front-month US West Texas Intermediate crude futures contract (WTI) for February delivery was up $1.52, or 2.1%, at $74.93 a barrel with the contract set to expire on Monday. The more active March WTI contract was up $1.20 at $74.45.
“Geopolitical factors are starting to gang up,” said Phil Flynn, analyst with the Price Futures Group, citing the war between Israel and Hamas in Gaza, US military battles with Houthi rebels in Yemen, as well as the ongoing Russian invasion of Ukraine.
Severe cold weather across the US is limiting crude oil output in North Dakota, the No.3 oil-producing state, as well reducing production operations in other states, while robust stock market activity points to stronger demand instead of a possible economic downturn, Flynn said.
“Pessimism about the economy is going away,” he said. The benchmark S&P 500 scaled a fresh record high, extending a bull-market run into a new week on a boost from megacap and chip stocks.
Speaking earlier in the day, Gary Dugan, chief investment officer at Dalma Capital, said fears of a possible recession were still weighing on the market. “Part of the reason why oil prices have remained in check could be the market’s anticipation that global growth is slowing,” Dugan said.
There are no signs of respite in Israel’s offensive in Gaza while attacks by Iran-aligned Houthis on commercial vessels in the Red Sea have continued despite retaliatory measures from the United States. Meanwhile, Russian energy company Novatek has been forced to suspend some operations at its Baltic Sea fuel export terminal because of a fire, it said on Sunday, which Ukrainian media said was caused by a drone attack.
The fire has been extinguished, local authorities said on Monday. Oil fundamentals could continue to drag on prices, according to IG analyst Tony Sycamore. Oil production is higher while the growth outlook in China and Europe is mixed and GDP data this week is expected to show growth of the US economy has slowed considerably, he said. “Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the back foot,” said Tamas Varga of oil broker PVM.
The latest demand growth forecasts by the US Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 are in a wide range between 1.24 million and 2.25 million barrels per day, though all three organisations expect demand growth to slow in 2025.
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