Oil prices experienced a significant surge on Wednesday, with Brent futures climbing 3.1% to settle at $78.25 a barrel, and U.S. West Texas Intermediate (WTI) crude rising 3.3% to settle at $72.70. The spike comes after a disruption at Libya’s largest oilfield and escalating tensions in the Middle East raised concerns about potential disruptions in global oil supplies.
The top-performing WTI saw its most substantial daily percentage gain since mid-November, marking a notable reversal in the trend of the past five days.
Craig Erlam, senior market analyst at data and analytics firm OANDA, attributed the surge to various factors, including protests at Libya’s Sharara oilfield and additional attacks in the Red Sea region. In Libya, protests forced a shutdown at the 300,000 barrel per day Sharara oilfield, impacting production.
The situation escalated further as Israel intensified its bombing of the Gaza Strip, with implications reaching Lebanon. The killing of Hamas’ deputy leader in Beirut added complexity to the conflict, potentially affecting the broader Middle East region. The Red Sea also witnessed continued attacks by Iran-backed Houthi rebels in Yemen, raising concerns about potential disruptions to key oil transport routes.
In Iran, two explosions at a ceremony commemorating the late Qassem Soleimani resulted in over 100 casualties. The geopolitical landscape in the Middle East remains tense, contributing to the uncertainty in global oil markets.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) emphasized the continuation of cooperation and dialogue within the wider OPEC+ oil producer alliance. The alliance, which includes OPEC and non-OPEC members like Russia, plans a meeting on February 1 to review the implementation of its latest oil output cut.
On the economic front, Federal Reserve officials expressed increasing confidence in controlling inflation during the December meeting. The Fed is expected to maintain interest rates in January, with traders anticipating a 65.7% chance of a 25 basis point rate cut in March, according to CMEGroup’s FedWatch tool. Lower interest rates could impact consumer borrowing costs, potentially boosting economic growth and oil demand.
As the market awaits oil inventory reports from the American Petroleum Institute (API) and the U.S. Energy Information Administration (EIA), analysts forecast a withdrawal of approximately 3.7 million barrels of oil from storage. This contrasts with a build of 1.7 million barrels in the same week last year and a five-year average decline of 4.0 million barrels.
The API and EIA will release their reports one day later than usual due to the New Year holiday, with API expected around 4:30 p.m. EST on Wednesday and EIA on Thursday. Investors and analysts will closely monitor these reports for insights into the current state of U.S. oil inventories.