Oil prices steadied on Tuesday after two days of gains, despite escalating tensions in the Middle East following the death of an Egyptian soldier in a clash with Israeli troops. Global benchmark Brent remained above $83 a barrel, while West Texas Intermediate approached $79.
The Egyptian military confirmed the death of a border guard at the Rafah crossing into Gaza on Monday, raising concerns of increased tensions with Israel. This incident comes as oil prices have been on the rise this year due to ongoing geopolitical risks and OPEC+’s output cuts of around 2 million barrels a day, which are expected to be extended into the second half of 2024.
Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank Ltd, noted that while there are several factors supporting oil prices, including geopolitical tensions and inventory drawdowns, the situation in Gaza serves as a warning against being overly bearish.
Despite the conflict in the Middle East, there has been no major disruption to crude flows from the region, which accounts for a significant portion of global oil output. However, recent Houthi attacks in the Red Sea have led to some supply rerouting.
Investors are now awaiting US fuel demand data following the Memorial Day holiday, which typically marks the beginning of the peak summer driving season. The situation in the Middle East continues to be closely monitored for any potential impact on oil markets.