Oil prices surged as tensions escalated in the Middle East

Oil prices rose on Monday following a drone attack on U.S. forces in Jordan, intensifying concerns about supply disruptions in the Middle East. Houthi rebels also increased their attacks on vessels in the Red Sea, targeting a fuel tanker operated by Trafigura.

The escalating risk of a broader conflict in the Middle East coincides with a decrease in Russian refined product exports. Drone attacks by Ukraine have damaged refineries and a major oil terminal, leading to repairs and a potential decline in exports.

Brent crude futures climbed 26 cents to $83.81 a barrel, reaching a session high of $84.80, while U.S. West Texas Intermediate crude futures rose 23 cents to $78.24 a barrel, hitting an intraday high of $79.29 earlier.

The drone strike targeting U.S. troops in Jordan has heightened concerns about a broader conflict in the oil-rich Middle East.

“We believe the death of three U.S. service members today in Jordan marks a critical inflection point in the ongoing conflict in the Middle East and raises a specter of a more substantial U.S. involvement in the war,” RBC Capital analyst Helima Croft emphasized in a note that a more direct confrontation with Iran increases the likelihood of regional energy supply disruptions.

Commodities trader Trafigura announced on Saturday that it was evaluating the security risks of additional Red Sea voyages following firefighters‘ containment of a blaze on a tanker targeted by Yemen’s Houthi group a day earlier.

“Disruptions to supply have been limited, but that changed on Friday after an oil tanker operating on behalf of Trafigura was hit by a missile off the coast of Yemen,” said ANZ analysts in a note.

“With oil tankers linked to the U.S. and UK now under threat of attack, the market is likely to reprice the risk of disruptions.”

Both contracts marked their second consecutive weekly rise and closed at their highest levels in nearly two months on Friday. The uptrend was driven by concerns over Middle East and Russian supply disruptions, coupled with positive U.S. economic growth indicators and signs of Chinese stimulus, which bolstered demand expectations.

“The air of complacency lingering around the oil market has evaporated,” noted IG markets analyst Tony Sycamore.

“Dips in WTI are likely to find buyers back towards the 200-day moving average at $77.60, before a stronger layer of support at $75.00 from buyers looking for a push into the low $80’s.”

Traders and LSEG ship-tracking data indicate that Russia is poised to reduce its exports of naphtha, a crucial petrochemical feedstock, by approximately 127,500 to 136,000 barrels per day. This reduction represents roughly a third of Russia’s total exports. The move follows fires that disrupted operations at refineries located on the Baltic and Black Seas.

On February 1, key ministers from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia and collectively known as OPEC+, are scheduled to convene for an online meeting.

OPEC+ sources mentioned that decisions regarding oil production levels for April and beyond are likely to be made in the coming weeks, as the upcoming meeting is deemed too early to determine further output policy.

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