Commodities

Oil edges lower as investors eye Middle East crisis amid stronger US dollar; Brent at $77/bbl

Oil prices edged lower on Tuesday, January 16, as investors weighed the impact of tensions in the Middle East against a stronger dollar and cooled expectations of US interest rate cuts. An escalating shipping crisis in the Red Sea and Iranian missile strikes on targets in Syria and Iraq added to the geopolitical risk premium on oil prices earlier today.

Brent crude futures were down 46 cents, or about 0.59 per cent, to $77.69 a barrel. The contract had traded more than $1 higher than its Monday settlement earlier in the session. US West Texas Intermediate crude was down 90 cents, or 1.24 percent, from Friday at $71.78 a barrel, according to news agency Reuters.

Also Read: Government cuts windfall tax on crude petroleum to 1,700/tonne effective tomorrow

Back home, on the Multi Commodity Exchange (MCX), crude oil futures due for a January 19 expiry, was last trading 0.72 per cent higher at 6,051 per bbl, having swung between 5,969 and 6,109 per bbl during the session, against a previous close of 6,008 per barrel.

What’s weighing on crude oil prices?

-Analysts say that oil prices may find a ceiling unless production is shut in. Oil markets are still sensitive to tensions in the Middle East, but the base case remains that we’ll see no significant disruption to flows, according to OANDA analysts.

-In the absence of actual and palpable impact on oil output, prices will remain well within the current $72-$82 range, said Tamas Varga, an analyst at PVM in a note. Oil prices to be giving way to a stronger dollar and weaker equities on Tuesday, because of lower expectations that US Fed could start cutting interest rates as soon as March.

-Investors are also awaiting a speech by Fed Governor Christopher Waller for clues about when the US central bank might begin to cut rates. The European Central Bank’s interest rates are likely to come down this year, but policymakers have avoided making firm statements on the timing of such cuts.

-In the Red Sea, a Malta-flagged bulk carrier was struck by a missile off Yemen on Tuesday. NYK, Japan’s largest shipper by sales, instructed all vessels it operates not to use the Red Sea, while Sovcomflot, Russia’s leading tanker group, is also considering alternative routes.

-Concerns of the conflict spreading throughout the region also grew on Tuesday, as Iran’s striking of targets in the semi-autonomous Kurdistan region of Iraq triggered a diplomatic dispute. Iran also attacked Islamic State positions in Syria.

Also Read: India’s demand for Russian crude resilient despite Red Sea threats: S&P Global

Where are prices headed?

Crude oil experienced modest profit-taking ahead of key US economic data and a stronger dollar index. The market also monitored potential retaliation by the Iran-backed Houthi group for recent strikes by US and UK forces. Concerns about a spillover effect in the Israel-Hamas conflict due to air-strikes in Yemen added to the market’s uncertainty.

The Houthi Group announced its intention to broaden its targets in the Red Sea, including US ships, following the latest strike, contributing to tensions that are supporting oil prices at lower levels, according to analysts.

‘’We anticipate continued volatility in crude oil prices during today’s session. Crude oil finds support at $71.80–71.20, with resistance at $73.05-73.80. In INR, crude oil has support at 5,920-5,840 and resistance at 6,110-6,190,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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