Oil prices rose on Tuesday amid escalating geopolitical tensions in the Middle East and Russia while traders awaited the outcome of the OPEC+ meeting later this week.
As of 6:48 GMT, Brent crude futures gained 0.42 percent to $72.13 a barrel, while U.S. West Texas Intermediate crude futures rose 0.37 percent to $68.35 per barrel.
OPEC+ meeting
Investors are now in a wait-and-watch mode ahead of the OPEC+ meeting on December 5 with expectations that the group will extend its output cuts until the end of the first quarter of 2025. The Organization of the Petroleum Exporting Countries and its allies such as Russia, has been looking to reduce production cuts by the first quarter of 2025. However, the outlook for greater supply has put pressure on oil prices. The group accounts for about half of the world’s oil production.
Traders also expect Saudi Arabia, the world’s top exporter, to cut crude prices for Asian buyers to the lowest level in at least four years.
China’s oil demand outlook
The consumption outlook remains weak with China’s oil demand expected to peak as soon as next year, further increasing the gap between demand and supply. However, recent encouraging economic indicators from China, the world’s largest oil importer, provided some support to crude prices.
Recent Purchasing Managers’ Index (PMI) data from China indicated another uptick in manufacturing activity during November. Both governmental and private reports corroborated this trend, which follows a series of aggressive stimulus measures implemented by Beijing since late September. This fueled optimism that economic activity in China will strengthen in the upcoming months, supported by ongoing governmental backing.
However, optimism regarding China was somewhat dampened by threats of increased tariffs from U.S. President-elect Donald Trump. These threats have also bolstered the dollar, which has constrained overall gains in oil prices.
Fed rate cut concerns
Concerns that the U.S. Federal Reserve may not cut rates at its December meeting have also impacted the rise in oil prices, offsetting positive signals from China. Oil prices fell more than 3 percent last week.
Federal Reserve Governor Christopher Waller said he was inclined to support another rate cut this month. However, Atlanta Federal Reserve President Raphael Bostic said that the Fed still needed to consider upcoming jobs data. Meanwhile, New York Fed Bank President John Williams said that he expects the central bank to continue moving to a more neutral policy setting over time.
Geopolitical risks rise
A ceasefire deal between Israel and Lebanon had eased concerns about supply disruptions from the Middle East. However, holes continued to appear in the deal between Israel and Lebanon as both sides accused each other of ceasefire violations.
In addition, Russia fired at least 60 North Korean missiles against Ukraine. North Korean leader Kim Jong Un vowed that his country will support Moscow until it achieves victory in Ukraine.
Read: Gold prices rise as traders await Fed’s December rate cut decision
U.S. oil inventories decline
Government data released last Wednesday indicated a decline in U.S. oil inventories by 1.8 million barrels for the week ending November 22. In contrast, gasoline inventories rose by 3.3 million barrels, marking the second consecutive week of significant increases, alongside a rise in distillate stocks. These inventory builds have raised concerns about potential demand slowdowns in the U.S., the world’s largest fuel consumer, particularly as winter approaches—a period typically associated with reduced travel.
