Oil edged higher after another choppy session as traders weighed increased tensions in the Middle East and production outages in the US against a broader risk-off sentiment in financial markets.
West Texas Intermediate swung in a $2 range before settling up 0.2% to top $72 a barrel. WTI’s prompt spread, a critical barometer for supply and demand, settled in the bullish structure known as backwardation for the first time since November.
Geopolitical risks remain elevated as Houthi militants threaten shipping in the Red Sea off Yemen’s coast despite US-led airstrikes, and concerns linger that the Israel-Hamas war will spread beyond Gaza, potentially drawing in Iran directly. Earlier, crude prices faltered amidst broader risk-off sentiment and a stronger US dollar that made commodities priced in the currency less attractive.
“Crude has battling fundamental weakness with escalation risk in the Middle East,” and “recently, the market has feared the macro downside more than the potential of broader escalation which has yet to disrupt supplies,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “More incidents in the Red Sea may incite some short covering and provide a buffer to the commodity in an otherwise weak fundamental environment.”
Meanwhile, OPEC has forecast that global oil demand will continue to increase strongly in 2025 and exceed growth in supplies. In the US, freezing temperatures have curbed refinery operations in the processing hub of Texas and shut in more than half of North Dakota’s oil production. As much as 700,000 barrels a day was offline, up from 425,000 barrels on Monday, the North Dakota Pipeline Authority said Wednesday. – Bloomberg
