Market Analysis
The global oil market witnessed a rise in prices on Tuesday, driven by concerns over limited supply from Russia and Iran due to Western sanctions and expected higher Chinese demand. According to the latest data, Brent crude futures settled at $77.05 a barrel, up 75 cents, or 0.98%. U.S. West Texas Intermediate (WTI) crude finished at $74.25 a barrel, up 69 cents, 0.94%.
Market Participants Weigh in
Forex market analyst Razan Hilal weighed in on the current market situation, stating that traders are looking to Chinese stimulus plans to drive growth as supplies are tight following the Christmas and New Year’s holidays. "While the market is currently range-bound, it is recording gains on the back of improved demand expectations fueled by holiday traffic and China’s economic pledges," Hilal said in a morning note. "However, the primary trend remains bearish."
Iranian Oil Exports to China
UBS analyst Giovanni Staunovo noted that some market participants have started to price in small supply disruption risks on Iranian crude exports to China. This comes as concerns over sanctions tightening supply have translated into increased demand for Middle Eastern oil, reflected in a rise in Saudi Arabia’s February oil prices to Asia, the first such increase in three months.
Chinese Ports and US-Sanctioned Oil Vessels
In a development that could potentially restrict blacklisted vessels from major energy terminals on China’s east coast, Shandong Port Group issued a notice banning U.S.-sanctioned oil vessels from its network of ports. According to three traders, this move may impact the operations of US-sanctioned oil vessels at key ports such as Qingdao, Rizhao, and Yantai.
Global Economic Data
Meanwhile, cold weather in the U.S. and Europe boosted heating oil demand, though oil price gains were capped by global economic data. The Euro zone inflation accelerated in December, an expected blip that is unlikely to derail further interest rate cuts from the European Central Bank. "Higher inflation in Germany raised suggestions the ECB may not be able to cut rates as fast as hoped across the euro zone," said Panmure Liberum analyst Ashley Kelty.
Technical Indicators and Market Expectations
According to Harry Tchilinguirian, head of research at Onyx Capital Group, technical indicators for oil futures are now in overbought territory. "Sellers are keen to step in again to take advantage of the strength, tempering additional price advances," he said.
Market participants await more economic data, including the U.S. December non-farm payrolls report on Friday. Phil Flynn, senior analyst with the Price Futures Group, believes that a tight physical market and demand exceeding supply will lead to more drop downs of inventories around the globe. "We have a very tight physical market and see demand exceeding supply," Flynn said.
Conclusion
In conclusion, oil prices rose on Tuesday due to concerns over limited supply from Russia and Iran. Market participants await further economic data, including the U.S. December non-farm payrolls report, which is expected to provide more insight into the current market situation.
Key Takeaways
- Brent crude futures settled at $77.05 a barrel, up 75 cents, or 0.98%.
- U.S. West Texas Intermediate (WTI) crude finished at $74.25 a barrel, up 69 cents, 0.94%.
- Concerns over sanctions tightening supply have translated into increased demand for Middle Eastern oil.
- Shandong Port Group issued a notice banning US-sanctioned oil vessels from its network of ports.
- Global economic data capped oil price gains, with Euro zone inflation accelerating in December.
Recommendations
Investors and market participants are advised to closely monitor further economic data releases, including the U.S. December non-farm payrolls report, for potential insights into the current market situation. A tight physical market and demand exceeding supply may lead to more drop downs of inventories around the globe.
