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Oil prices rebound as growing political tensions fuel supply fears

Tuesday, 25 January 2022 | 13:00

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

Brent crude futures rose $1.21, or 1.5%, to $87.52 a barrel at 0946 GMT, reversing a 1.8% fall in the previous session. U.S. West Texas Intermediate (WTI) crude futures climbed $1.11, or 1.3%, to $85.42 a barrel, having slid 2.2% on Monday.

World equities, which often move in tandem with oil, are set for their biggest monthly drop since the pandemic hit markets in March 2020.

Meanwhile, both WTI and Brent, fresh from hitting seven-year highs last week, are heading for monthly gains of over 12%.

Indicating current tight supply, Brent’s six-month spread in backwardation as front month delivery futures trade at a premium of around $5 a barrel.

Ahead of an expected U.S. Federal Reserve interest rate decision on Wednesday where a hike might weigh on prices, geopolitical risks involving oil and gas producer Russia have been supporting oil prices.

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.

Also fuelling supply concerns, 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 at Cushing in Oklahoma at the lowest for the time of year since 2012.
Source: Reuters

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