HomeFutures and CommoditiesOil prices increase as investors consider Red Sea attacks and potential US...

Oil prices increase as investors consider Red Sea attacks and potential US rate cuts.

Oil Prices Recover in Asian Trade Amid Red Sea Attacks and US Rate Cut Outlook

Concerns Over Attacks on Shipping and US Interest Rates

Oil prices made gains in Asian trade on Wednesday amidst worries about assaults on shipping in the Red Sea and growing expectations of delayed cuts to U.S. interest rates. Brent futures rose by 0.3% to $82.58 a barrel, while U.S. West Texas Intermediate crude futures (WTI) were up 0.3% at $77.25.

Impact of Freight Flows and Geopolitical Tensions

The premium for prompt futures to the second-month contract more than doubled to $1.71 a barrel, leading to a decrease in Brent and WTI contracts from near three-week highs on Tuesday. This development has sparked concerns over the flow of freight through critical waterways due to attacks on vessels in the Red Sea and Bab al-Mandab strait by Yemen’s Iran-aligned Houthis.

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Geopolitical Implications and OPEC+ Quota Fulfillment

Geopolitical tensions have also been exacerbated by the ongoing Israel-Hamas war and Russia’s pledge to fulfill its OPEC+ quota in February despite a decline in oil refining. Refinery throughput in Russia has fallen by 7% since the start of the year due to damage from Ukrainian drone attacks.

Impact of Federal Reserve Rate Cuts on Oil Demand

Concerns about the outlook for oil demand have been influenced by the potential delay of rate cuts by the Federal Reserve. This shift in expectations has been driven by U.S. inflation data, which has pushed back forecasts for an imminent start to the Fed’s easing cycle.

Projected Inventory Movements

U.S. crude inventories were expected to rise by about 4.3 million barrels in the week to Feb. 16, as per a preliminary Reuters poll. Distillates and gasoline stockpiles were anticipated to decrease, contributing to the overall inventory movement.

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