By Myra P. Saefong and William Watts
Oil futures settled higher on Tuesday, recouping their loss from a day earlier and then some, as tensions between Russia and NATO over Ukraine fed global supply concerns.
The move up for oil also came against a background of volatility in global equity markets as traders awaited the Federal Reserve’s policy decision.
“The market remains fundamentally bullish and conflict with Russia does nothing to alleviate supply-side pressures,” said Pratibha Thaker, editorial director, Middle East and Africa, at the Economist Intelligence Unit.
“Tensions are seriously heightened between Russia and the West and if there is an invasion of Ukraine when energy markets are already so tight, the additional risk premium should continue to support prices and push it even higher,” she told MarketWatch.
The threat of a conflict is seen adding to broad market jitters, while carrying the potential to spark significant volatility in energy prices given Russia’s role as a major oil producer and as a key supplier of natural gas to Western Europe.
West Texas Intermediate crude for March delivery /zigman2/quotes/209723049/delayed CL00 +0.80% rose $2.29, or nearly 2.8%, to settle at $85.60 a barrel on the New York Mercantile Exchange, after losing about 2.2% on Monday. March Brent crude , the global benchmark, climbed $1.93, or 2.2%, at $88.20 a barrel on ICE Futures Europe.
“Even more tight supplies to the market could happen with the rising tensions in the Middle East,” said Brian Swan, senior commodity analyst at Schneider Electric, in a daily note.
The United Arab Emirates on Monday said it intercepted two ballistic missiles targeting its capital, Abu Dhabi, with Houthi rebels blamed for brewing conflict in the region. Oil prices were lifted last week after the Iran-aligned Houthis claimed responsibility for an attack that targeted a key oil facility in Abu Dhabi, killing three people.
On the flip side, there is a Fed interest rate decision due Wednesday, Swan said. “If a hike in interest rates is determined, look for selling interest to weigh on prices.”
Crude futures fell sharply on Monday as the commodity got caught up in a sharp stock-market selloff that, at its session lows, saw the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.34% drop more than 1,100 points and the S&P 500 /zigman2/quotes/210599714/realtime SPX +2.02% down 4% before roaring back in late trade to end the day in positive territory.
U.S. benchmark stock indexes saw volatile trading on Tuesday , after Monday’s wild session saw a 1,000-point-plus upside reversal by the Dow Jones Industrial Average.
“The outlook for oil is still bullish right now as inventories are seen rising by a smaller amount than initially thought as surplus estimates are dialed back given lower production and better demand conditions,” wrote analysts at Sevens Report Research, in a note. “Near term, expect oil to remain volatile with other risk assets as Fed policy uncertainty continues to push and pull this market around.”
The oil market will get its weekly update on U.S. petroleum supplies Wednesday.
On average, analysts forecast a decline of 2.1 million barrels in domestic crude inventories for the week ended Jan. 21, according to a survey conducted by S&P Global Platts. They also expect a climb of 2.2 million barrels for gasoline stockpiles and a decline of 1.6 million barrels in distillate supplies.
On Nymex Tuesday, February gasoline tacked on 2.6% to $2.46 a gallon, while February heating oil tacked on 1.6% to $2.669 a gallon.
February natural gas settled at $4.053 per million British thermal units, up nearly 0.7%.