Oil prices increased on Tuesday, buoyed by recent rising tensions in the Red Sea, which have heightened concerns over supply disruptions. Geopolitical tensions and evolving Federal Reserve policy dynamics continue to influence market sentiment.
Brent crude futures experienced an increase of 0.16 percent, settling at $82.66 a barrel by 6:32 GMT. Meanwhile, U.S. West Texas Intermediate crude futures (WTI) rose by 0.18 percent to $77.72 a barrel.
Global dynamics
The ongoing tensions in the Red Sea have significantly disrupted shipping routes, leading to increased freight rates and shipping times. This particularly impacts the oil market as supply concerns and fears of supply chain disruption rise, thus supporting oil prices.
Notably, analysts note indications of improved demand in China, as refineries continue rapid purchasing activities despite planned maintenance halts. This resilience in Chinese demand provides additional support to the oil market amidst global economic uncertainties.
Fed’s policy impact
The Federal Reserve’s policy stance also influences oil prices. Fed officials’ recent remarks signal a cautious approach towards interest rate adjustments, citing concerns over their potential impact on economic growth and oil demand. The market is currently suggesting a probability of approximately 79 basis points of rate cuts for 2024. Moreover, it suggests a 61 percent probability of the first quarter-point cut occurring in June. Such sentiments offer support to oil prices amidst broader market fluctuations.
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Crude inventories
Moreover, investor attention remains focused on the American Petroleum Institute‘s (API) weekly data on U.S. crude inventories, scheduled for release later in the day at 21:30 GMT. Analysts anticipate an increase in crude inventories by approximately 1.8 million barrels for the week ending on February 23, according to a poll by Reuters. Hence, a potential increase in oil inventories could shape short-term market expectations.
As oil prices navigate through geopolitical tensions, supply concerns, and evolving monetary policy dynamics, market participants remain vigilant, seeking insights from both macroeconomic indicators and geopolitical developments.
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