Oil prices inched up in early Tuesday trade as investors waited to see whether a Middle East trip by top U.S. diplomat Antony Blinken will bring a halt to the Gaza war, which has raised concerns about supplies from the major producing region.
Brent crude futures rose 20 cents to $78.19 a barrel at 0452 GMT, while U.S. West Texas Intermediate crude futures climbed 20 cents to $72.98. Both contracts gained nearly 1% on Monday, rising for the first time in four sessions.
“The signs of de-escalation in the Middle-Eastern crisis are missing and continue to extend some support to ailing oil prices,” said Phillip Nova senior market analyst Priyanka Sachdeva.
Blinken met Saudi Arabia’s de-facto ruler on Monday. Palestinians hope the visit will clinch a truce before a threatened Israeli assault on Rafah, a border city where about half the Gaza Strip population is sheltering.
The ceasefire offer, delivered to Hamas last week by Qatari and Egyptian mediators, awaits a reply from militants who say they want more guarantees it will bring an end to the four-month-old war.
The United States continued its campaign against Iran-backed Houthis in Yemen, whose attacks on shipping vessels have disrupted global oil trading routes.
Concerns about the demand outlook however limited price gains.
Analysts said expectations of “higher for longer” interest rates in the United States, and beyond, would likely cap consumption, as are indications that China’s economy continues to struggle with meaningful growth.
CMC Markets analyst Leon Li also said it would be “difficult to return to previous highs” given that the a run of strong economic indicators out of the United States would likely lose steam.
“Layoffs are still increasing. This means that in the long term, the (oil) demand will decline,” Li said.
On the supply side, market participants are awaiting industry data due later on Tuesday on U.S. crude stockpiles. Five analysts polled by Reuters estimated on average that crude inventories rose by about 2.1 million barrels in the week to Feb. 2.
BMI analysts said in a client report that they expect the market will remain broadly balanced over the course of the year and that oil prices would gain a moderate 3.4%.
“However, we see risks to the outlook both to the upside and the down, due to considerable uncertainties surrounding the strength of the global economy, the fallout from the unfolding Red Sea crisis and the evolution of OPEC+ policy, amongst other things,” they added.
(Reporting by Stephanie Kelly and Trixie Yap; Editing by Miral Fahmy)