Oil prices fluctuate amid economic uncertainties and concerns in the Red Sea region 

Oil prices experienced a mixed performance on Tuesday, following previous session losses, with broader economic worries taking precedence over ongoing tensions in the Middle East, leading to additional diversions of tankers.

Brent crude futures showed a marginal increase of 3 cents, approximately 0.04%, reaching $78.15 per barrel at 0647 GMT. This follows a 14-cent decrease in the previous session on Monday.

U.S. West Texas Intermediate crude experienced a decline of 23 cents, or 0.32%, settling at $72.45 per barrel, following a U.S. public holiday on Monday.

“Fears of weaker economic growth weighed on sentiment across the commodity complex. This was despite rising tensions in the Red Sea,” said ANZ analysts in a client note.

Asian shares dropped to a one-month low, U.S. stock futures fell, and the dollar rose on Tuesday. This shift in the market was prompted by hawkish comments from central bankers, which tempered expectations for interest rate cuts. Investors were cautious ahead of an economic outlook speech by the U.S. Federal Reserve’s Christopher Waller later in the day.

Oil prices faced some downward pressure as concerns arose about China’s near-term demand. This was driven by the decision of China’s central bank to leave the medium-term policy rate (MLF) unchanged on Monday, contributing to uncertainties about the country’s economic outlook and oil consumption.

“Yesterday’s refusal of China’s central bank, PBoC, to enact a cut on its 1-year MLF rate has dampened the expectations of more pronounced stimulus measures from China’s top policymakers which in turn led to a weaker demand narrative for oil that capped further potential upside,” noted Kelvin Wong, OANDA’s senior markets analyst.

Additionally, attention was on the extremely cold weather in the U.S., which had the potential to impact oil production and major refinery operations, adding to the factors influencing oil prices.

The severe cold weather in the U.S. has led to a significant drop in North Dakota’s oil production, with a reduction of 400,000 to 425,000 barrels per day due to operational challenges.

“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.),” said Leon Li, CMC Markets analyst.

Official U.S. Energy Information Administration (EIA) inventory data is anticipated on Thursday, one day later than usual this week due to the holiday on Monday.

Yemen’s Houthi movement declared its intent to broaden its targets in the Red Sea to include U.S. ships, following strikes by the U.S. and Britain on Houthi sites in Yemen.

Heightened disruptions in the southern Red Sea led to more oil tankers avoiding the region on Monday, impacting shipping costs and delaying oil transportation.

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