Oil slips after rally last week on Middle East, tight supply

[February 12, 2024]  By Natalie Grover

LONDON (Reuters) -Oil prices slipped on Monday as investors indulged in some profit-taking after both benchmarks ended last week about 6% higher on Middle East tensions and as refining outages squeezed refined products markets.

Brent crude futures were down 82 cents, or about 1%, at $81.37 a barrel, while U.S. West Texas Intermediate crude futures slipped 74 cents, also about 1%, to $76.1 a barrel at 1022 GMT.

Last week, the major forces underlying the rally were the persistent threats to shipping in the Red Sea, Ukrainian strikes on Russian refineries and U.S. refinery maintenance, Tamas Varga of oil broker PVM told Reuters.

This has led to scarce availability of products, particularly in the middle of the barrel, he said.

"These factors have not subsided yet - and for this reason, I believe that what we see at the moment is only a retracement."

Logistics disruptions in the Red Sea continued on Monday, with Yemen-based Houthis saying they had targeted a cargo ship in the Red Sea, which they claimed was American.

Shipping trackers said the Marshall Islands-flagged ship was Greek-owned.

The Houthis have targeted shipping with drones and missiles since November in solidarity with Palestinians in Gaza. The United States has led retaliatory strikes on Houthi missile sites since January.

The Houthis have since said they will target ships not just connected to Israel, but also the U.S. and Britain.

In other supply news, Saudi Arabia's energy minister on Monday said the Kingdom has plenty of spare oil production capacity, after the world's biggest oil exporter announced last month that it would scale back its long-term capacity expansion plans.

Storage tanks are seen at the Petroineos Ineos petrol refinery in Lavera, France, March 29, 2022. Picture taken March 29, 2022. REUTERS/Benoit Tessier/File Photo

In terms of non-OPEC production, however, a potential uptick in U.S. production emerged, with U.S. energy firms increasing oil and natural gas rigs to their highest since mid-December.

Still, demand concerns fester.

A U.S. Federal Reserve official said she had no interest in recommending an interest rate cut, adding to the chorus on further reining in inflation. Higher interest rates slow economic growth, dampening oil demand.

U.S. inflation data is expected on Tuesday, while British inflation data and euro zone GDP should land on Wednesday.

Meanwhile, France's TotalEnergies CEO Patrick Pouyanne said he does not see peak oil demand in the numbers, adding "we should exit debate about peak oil demand, be serious, and invest".

Paris-based oil forecaster the International Energy Agency (IEA), which represents industrialised countries, predicts oil demand will peak by 2030, undercutting the rationale for investment.

But OPEC believes oil use will keep rising over the next two decades.

(Reporting by Natalie Grover and Sudarshan Varadhan; editing by Shri Navaratnam and Jason Neely)

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