Oil prices saw an increase on Tuesday, boosted by instability in the Middle East along with China’s stimulus initiatives and economic data. However, concerns regarding global growth, U.S. tariffs, and ongoing ceasefire discussions between Russia and Ukraine limited these gains. The Middle East region is crucial to global energy markets, where increased tensions can raise worries about possible disruptions.
Brent Oil Futures set to expire in May climbed 0.4 percent to $71.32 per barrel as of 22:51 ET (02:51 GMT), while West Texas Intermediate (WTI) crude futures also rose by 0.4 percent to $67.61 per barrel. Both contracts concluded nearly 0.7 percent higher on Monday, driven by geopolitical strains in the Red Sea and optimism surrounding China’s plans to enhance consumption.
“Economic concerns pressured fuel markets, increasing gas oil shorts while NY-traded RBOB gasoline and ULSD diesel positions were cut to near neutral. Gasoline saw fresh short selling (-15.2K), and ULSD experienced long liquidation (-8.7K). Consequently, leaving the RBOB contract mostly exposed to short covering and it partly explains why RBOB is up 3.1 percent since last Tuesday, while ULSD is unchanged,” remarked Ole Hansen, head of Commodity Strategy, Saxo Bank to Economy Middle East.
Investors cautious ahead of Fed meeting
Oil struggled to achieve significant gains as investors remained wary ahead of the Federal Reserve’s policy meeting scheduled for later in the day. The central bank is largely anticipated to keep the federal funds rate within its current range of 4.25 percent to 4.50 percent on Wednesday. Investors are especially focused on the Fed’s comments regarding recent trade policies, including tariffs that were enacted by the Trump administration, which have raised concerns about a potential recession.
Rising trade tensions have played a role in the recent dip in oil prices, with Brent crude futures trading near three-year lows of approximately $70 per barrel earlier this month. The possibility of extended trade disputes and their implications for global economic growth could suppress oil demand, applying downward pressure on prices. Insights from the Fed during the meeting may offer additional clarity on the direction of the U.S. economy and may assist in forecasting the U.S. dollar.
“In the forex market, a 2.2 percent slump in the Dollar Index supported a continued reduction in speculative long dollar positions. Overall, an eighth consecutive week of net USD selling reduced the gross long versus eight IMM futures to a five-month low at $5 billion, down from a January $35 billion peak just before a number of Trump policy announcements triggered a major and ongoing reversal,” highlighted Hansen.
Theoretically, increased interest rates typically fortify the U.S. dollar by attracting foreign investment, making oil—priced in dollars—more costly for holders of other currencies. This can reduce demand and exert downward pressure on oil prices.
Read more: Oil prices rise to $71.73 on Red Sea tensions, China’s new plan
OECD highlights demand concerns
Addressing ongoing worries regarding demand, a significant downside risk for oil, the OECD stated on Monday that Trump’s tariffs would hinder growth in the United States, Canada, and Mexico, which would, in turn, impact global energy demand.
The State Council, or cabinet, revealed a special action plan on Sunday aimed at boosting domestic consumption, which includes measures such as increasing incomes and providing childcare subsidies. On Monday, positive Chinese economic data indicated that retail sales growth accelerated in January and February, offering investors some reasons for optimism, even though factory output declined, and the urban unemployment rate reached its highest level in two years.
Crude oil throughput in China, the largest crude importer globally, surged by 2.1 percent in January and February compared to the previous year, driven by a new refinery and holiday travel, as indicated by official data released on Monday. Prices also received a boost from President Donald Trump’s commitment to continue the U.S. offensive against Yemen’s Houthis unless they cease their attacks on ships in the Red Sea. Industrial production for January and February increased by 5.9 percent, surpassing expectations, while retail sales rose by 4 percent during the same period, compared to a 3.7 percent rise in December.
