Oil Prices Display Mixed Trends Amid Economic Concerns and Geopolitical Developments

Oil prices showed a mixed performance on Tuesday, following losses in the previous session, as global markets assessed broader economic worries in contrast to weather-related U.S. demand-supply challenges and ongoing tensions in the Middle East leading to increased tanker diversions.

Brent crude futures saw a modest rise of 5 cents, or around 0.06%, reaching $78.20 a barrel at 0334 GMT, after settling 14 cents lower on Monday. Meanwhile, U.S. West Texas Intermediate crude experienced a decline of 20 cents, or 0.28%, settling at $72.48 per barrel following a U.S. public holiday on Monday.

ANZ analysts noted in a client note that concerns about weaker economic growth impacted sentiment across the commodity complex, despite the heightened tensions in the Red Sea region.

Asian shares witnessed a drop to a one-month low, U.S. stock futures declined, and the dollar gained ground on Tuesday. Hawkish remarks from central bankers tempered expectations for interest rate cuts, preceding an economic outlook speech by the U.S. Federal Reserve’s Christopher Waller at 1600 GMT on Tuesday.

Citing the current scenario, CMC Markets’ analyst Leon Li mentioned, “At present, the wait-and-see sentiment in the oil market is relatively heavy, with the escalation of geopolitical conflicts offset by the (earlier) accumulation of inventory (in the U.S.).”

The oil market is closely monitoring extremely cold weather in the U.S., which could impact oil production and major refinery operations. Analysts noted that North Dakota’s oil production has already fallen due to extreme cold and related operational issues.

In the Middle East, Yemen’s Houthi movement announced its intention to expand targets in the Red Sea region, including U.S. ships. This followed U.S. and British strikes on Houthi sites in Yemen. The disruptions prompted more oil tankers to avoid the southern Red Sea on Monday, leading to increased shipping costs and longer transit times for oil shipments.

Despite a 2% rise in oil prices last week due to the escalating conflict in the Middle East, analysts suggest that the lack of a direct impact on oil production may be constraining further gains.

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