Oil prices increase due to rising fears of disrupted supplies

Oil prices rose on Tuesday, driven by concerns over limited supply from Russia and Iran due to Western sanctions and increased demand expectations fueled by holiday traffic and China’s economic pledges.

Brent Crude Futures and U.S. West Texas Intermediate (WTI) Crude Prices

• Brent crude futures settled at $77.05 a barrel, up 75 cents or 0.98% from the previous day’s close.
• U.S. West Texas Intermediate (WTI) crude finished at $74.25 a barrel, up 69 cents or 0.94%.

Market Analysts Weigh In

Forex market analyst Razan Hilal stated 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."

UBS analyst Giovanni Staunovo noted that some market participants have started to price in small supply disruption risks on Iranian crude exports to China.

Concerns Over Sanctions and Supply Disruptions

Concern over sanctions tightening supply has led to increased demand for Middle Eastern oil. This is reflected in a rise in Saudi Arabia’s February oil prices to Asia, the first such increase in three months.

Meanwhile, Shandong Port Group issued a notice banning U.S.-sanctioned oil vessels from its network of ports in China, potentially restricting blacklisted vessels from major energy terminals on China’s east coast. Shandong Port Group oversees large ports on China’s east coast, including Qingdao, Rizhao, and Yantai, which are major terminals for importing sanctioned oil.

Heating Oil Demand Boosted by Cold Weather

Cold weather in the U.S. and Europe boosted heating oil demand, though oil price gains were capped by global economic data.

Euro Zone Inflation Accelerates

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.

"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 Suggest Price Advances May Be Limited

Technical indicators for oil futures are now in overbought territory, and sellers are keen to step in again to take advantage of the strength. This may temper additional price advances.

"We have a very tight physical market and see demand exceeding supply," said Phil Flynn, senior analyst with the Price Futures Group. "That should lead to more drop downs of inventories around the globe."

Market Participants Await Economic Data

Market participants await more economic data, including the U.S. December non-farm payrolls report on Friday.

Supply and Demand Dynamics

• Tight physical market due to limited supply from Russia and Iran
• Increased demand expectations fueled by holiday traffic and China’s economic pledges
• Concern over sanctions tightening supply has led to increased demand for Middle Eastern oil

Market Sentiment

• Range-bound market with gains driven by improved demand expectations
• Primary trend remains bearish
• Technical indicators suggest price advances may be limited

Economic Data Impacting Oil Prices

• Euro zone inflation accelerated in December
• Higher inflation in Germany raised suggestions the ECB may not be able to cut rates as fast as hoped across the euro zone
• Market participants await U.S. December non-farm payrolls report on Friday