Oil prices edged up on Tuesday 30th of January, following a more than 1% decline in the previous session, driven by escalating geopolitical tensions in the Middle East, a major oil-producing region. Brent crude futures increased by 7 cents, or 0.07%, reaching $82.46 a barrel by 0734 GMT. Meanwhile, U.S. West Texas Intermediate crude rose by 15 cents, or 0.31%, to $76.93 a barrel.
Both contracts experienced a drop of over $1 on Monday 29th January, influenced by concerns about demand from China, the world’s largest crude consumer. These concerns were fueled by a deepening real estate crisis, triggered by a Hong Kong court’s order for the liquidation of the property giant China Evergrande Group.
“Oil price trading above US$80/bbl is pricing in some geopolitical risk premium again as flare-ups continue in the Middle East region. This could fade out within a week or two if there is no strong reaction from the US,” commented Suvro Sarkar, the energy sector team lead at DBS Bank. He added, “If it does worsen into a US-Iran standoff and stricter sanctions, then we are looking at US$80-100/bbl range for oil to sustain for some time.”
Geopolitical concerns were exacerbated by a deadly drone attack in Jordan by Iran-backed militants, prompting Washington to vow to take “all necessary actions” to defend its troops. This incident marked the first U.S. military deaths since the Israel-Gaza war began, putting markets on edge.
Commonwealth Bank of Australia analyst Vivek Dhar noted, “If U.S.-Iran tensions escalate, particularly through a direct confrontation, the risk rises that Iran’s oil supply is adversely impacted.” He added that Iran’s oil exports, representing 1-1.5% of global oil supply, could be vulnerable to potentially greater enforcement of sanctions.
Despite these geopolitical tensions supporting oil prices, concerns about China’s economic outlook and potential fallout from Evergrande’s liquidation order tempered gains. OANDA senior market analyst Kelvin Wong cautioned that the liquidation order could “trigger negative ramifications” in the stock and property markets, deepening deflationary risks in China and dampening the demand outlook for oil.
On the supply side, while an OPEC+ meeting on Feb. 1 was not expected to yield a decision on oil policy for April, analysts hoped it could provide insights into production plans. The state oil company of Saudi Arabia, the world’s largest producer, indicated a directive from the energy ministry to maintain its maximum sustainable capacity at 12 million barrels a day, rather than increasing it to 13 million barrels per day, suggesting a cautious approach to future demand outlook.
“We need to see more fundamental factors to stimulate oil prices; otherwise, WTI crude oil may be under (downward) pressure at $80,” warned CMC Markets’ Shanghai-based analyst Leon Li.
