Oil Prices Rise as Tensions in Middle East Raise Supply Risk

Oil Prices Rise as Tensions in Middle East Raise Supply Risk

Oil prices increased as rising tensions in the Middle East raised supply risk concerns in the global commodities market.  Brent crude, rose by around 0.5% trading at $70.89 per barrel, up from $70.54 at the previous session’s close.

The US benchmark, West Texas Intermediate (WTI) increased by 0.5%, reaching 67.33 per barrel, compared to its prior session close of $67. Geopolitical tensions in the Middle East, including Israel’s ground operations in Gaza and U.S. airstrikes on Houthi targets in Yemen, could drive the market to the upside.

Yemen’s Houthi group announced late Wednesday that 16 of its members were killed in US airstrikes targeting Saada, Al-Hazm district in Al-Jawf province, and As Sawadiyah district in Al-Bayda province, according to Houthi-affiliated Al-Masirah TV.

On Saturday, US President Donald Trump stated that he had ordered a “major attack” against the Houthis. He further warned on Wednesday that Iran must halt all alleged assistance to the group or face consequences.

Since late 2023, the Houthis have been attacking Israeli-linked ships in the Red Sea, Arabian Sea, Bab al-Mandab Strait, and the Gulf of Aden with missiles and drones, disrupting global trade in what they claim is an act of solidarity with Gaza. While the group halted attacks following a January ceasefire between Israel and Hamas, they threatened to resume operations after Israel blocked humanitarian aid into Gaza on March 2.

The Houthi group has been attacking Israeli-linked ships passing through the Red and Arabian Seas, the Bab al-Mandab Strait, and the Gulf of Aden with missiles and drones since late 2023, disrupting global trade for what it said was a show of solidarity with the Gaza Strip.

The ongoing hostilities in the Red Sea pose a significant risk to maritime trade security, potentially tightening global oil supplies.

Adding to market pressure, US Energy Information Administration (EIA) data revealed a decline in US crude oil production. Output fell by 2,000 barrels per day (bpd) to approximately 13.57 million bpd for the week ending March 14.

Over the same period, gasoline inventories dropped by 500,000 barrels, reaching 240.6 million barrels. Lower US production has fueled concerns over tightening supply, supporting upward price movements.

Monetary policy decisions from the Fed remain a key driver of oil prices. The Bank kept its policy rate steady in the 4.25%-4.50% range on Wednesday, citing a stable labor market and slightly elevated inflation.

The bank maintained its forecast for the federal funds rate, indicating that the possibility of two rate cuts this year remains unchanged. Analysts believe that a weaker US dollar, coupled with rate cuts aimed at stimulating economic growth, could push oil prices higher.

A depreciating US dollar makes oil more affordable for buyers using other currencies, while economic expansion could boost demand in oil-intensive sectors.

However, the outlook remains contingent on global economic growth at a time when trade tensions are increasing. In this regard, concerns over China’s oil demand persist.

A continued slowdown in imports from China could limit oil’s potential for a rebound. This comes in addition to the potential for additional supply from OPEC and the U.S., which could weigh on the market. #Oil Prices Rise as Tensions in Middle East Raise Supply Risk CBN Hikes Interest Rates on Nigerian Treasury Bills