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Oil prices rebound as growing geopolitical tensions fuel supply fears

Oil prices reached seven-year highs last week, bolstered by tight worldwide supply and resurgent global demand

Oil prices bounced back on Tuesday (25 January), recovering some of the previous day’s losses, as growing tension in Eastern Europe and the Middle East fuelled concerns over possible supply disruptions.

Brent crude futures rose 61 cents, or 0.7%, to US$86.88 a barrel at 0722 GMT after touching a session high of US$87.27 a barrel earlier, reversing a 1.8% fall in the previous session.

U.S. West Texas Intermediate (WTI) crude futures climbed 44 cents, or 0.5%, to US$83.75 a barrel, having slid 2.2% on Monday.

Oil prices reached seven-year highs last week, bolstered by tight worldwide supply and resurgent global demand.

“The market tone stays strong, supported by heightening geopolitical risk,” said Chiyoki Chen, chief analyst at Sunward Trading.

“We see profit-taking when the prices move higher, but buying appetite for oil remains solid as investors are worried about supply disruptions in the event of a Russia-Ukraine conflict,” he said.

NATO said on Monday it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as Western “hysteria” in response to its build-up of troops on the Ukraine border.

In the Middle East, Yemen’s Houthi movement, aligned with Iran, launched a missile attack at the United Arab Emirates on Monday that targeted a base hosting the U.S. military, but was thwarted by U.S.-built Patriot interceptors, U.S. and Emirati officials said.

“Downside risk on the oil market will be limited as any escalations of the situation in Ukraine or the Middle East will cause the prices to skyrocket,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

“Also, supply tightness is expected to continue as OPEC+ is struggling to reach its output target and will likely keep its policy of gradual increase of supply,” he said.

OPEC+, which groups the Organization of the Petroleum Exporting Countries (OPEC) with Russia and other producers, is struggling to hit its monthly output increase target of 400,000 barrels per day (bpd).

Lower U.S. oil inventories are also providing support, with crude inventories around the NYMEX WTI delivery point at Cushing in Oklahoma at the lowest for the time of year since 2012.

Portfolio investors added to their bullish positions in oil for the fifth week running, as the worst of the latest wave of coronavirus infections passed and governments began to lift restrictions on business and travel.

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