(Bloomberg) — Oil was steady after closing at a three-week high on escalating tensions in the Middle East, with the US and the Iranian-backed Houthis trading tit-for-tat strikes that have roiled global shipping.
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Brent held near $79 a barrel after rising by 1.6% on Thursday, while West Texas Intermediate was above $74, with a drop in US inventories providing further support. The US has launched multiple attacks on Houthi targets in Yemen, but the group continues to menace shipping off the coast, firing at another vessel. President Joe Biden said US strikes would continue.
Crude has struggled to set a sustained direction so far in 2024 — rising and falling on alternate weeks — with tensions in the Middle East countered by traders dialing back bets the Federal Reserve will start cutting interest rates soon, buoying the dollar and hurting risk assets. In addition, the International Energy Agency forecasts that the market looks well-supplied this year given output from the US, Brazil, Canada and Guyana.
US commercial crude stockpiles fell 2.5 million barrels last week to the lowest since October, according to the Energy Information Administration. While oil exports were strong, imports are also climbing as refiners make the most of cheap and plentiful Canadian supplies. Also in focus, freezing weather has curbed some US shale production, including from the Bakken formation.
“It could be the US crude stockdraws that finally forced the market to price in the Bakken outages and, by extension, ascribe a bit more risk premium to the Middle East crisis too,” said Vandana Hari, founder of Vanda Insights in Singapore. In the Red Sea, “an incident that causes major damage to life and property, at sea or on land, may become the tipping point,” she added.
The main concern about the tensions in the Middle East — including the Israel-Hamas war and strikes between Iran and Pakistan — is that Tehran will be drawn directly into the conflict. That could jeopardize crude production or further snarl cargoes from the region that pumps about a third of global supply.
While headline futures prices have moved modestly higher this week, there’s been a more pronounced gain in timespreads, which gauge the difference between contracts. Brent’s three-month spread is now more than $1 a barrel in backwardation, a bullish pattern marked by costlier near-term prices. A month ago, the gap was in contango, the opposite structure.
“Intensifying hostility in the Red Sea is raising oil-supply risks,” ANZ Group Holdings Ltd. analysts Daniel Hynes and Soni Kumari said in a note. Still, supply remains sufficient, with healthy exports from Russia and Iran, while demand is lackluster, they said.
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