Oil prices experienced a modest recovery in Asian trading on Wednesday, driven by increasing concerns over attacks on shipping routes in the Red Sea and the adjusting expectations regarding the timeline for cuts to U.S. interest rates. Brent crude futures saw an uplift of 30 cents, or 0.36%, reaching $82.64 a barrel, while U.S. West Texas Intermediate (WTI) crude futures also climbed by 26 cents, or 0.34%, to stand at $77.3.
This rebound comes after both Brent and WTI contracts dropped by 1.5% and 1.4% respectively from their near three-week highs on Tuesday. The shift was partly attributed to the widening premium for prompt U.S. crude futures over the second-month contract, which more than doubled to $1.71 a barrel, marking its widest margin in approximately four months. Such a premium incentivizes energy companies to sell their current stock rather than incurring costs to store the product for future sale. However, by Wednesday, the premiums had narrowed down to just 4 cents a barrel.
According to Vandana Hari, founder of Vanda Insights, a provider of oil market analysis, “Crude futures prices have become relatively range-bound and have at least $6-7 per barrel of risk premium embedded at current levels.” Hari suggests that prices are likely to remain within this range pending a significant development in the ongoing Gaza crisis, which could either lead to a de-escalation through a ceasefire agreement or further escalation from continued military activities in Rafah.
The situation in the Red Sea has notably impacted trading sentiments, as any threat to shipping routes can have immediate effects on global oil supply chains. Meanwhile, investor expectations regarding U.S. interest rate cuts are undergoing adjustments, with many now anticipating a longer timeline for any potential reductions. These factors combined are influencing the oil market dynamics, making for a cautious trading environment as stakeholders monitor developments closely.
