Oil price gains capped by demand concerns

[March 12, 2024]  By Paul Carsten

LONDON (Reuters) -Oil prices rose in Tuesday trade as tensions in the Middle East continued to spur concern, but gains were capped by bearish demand sentiment ahead of monthly reports from oil agencies.

Brent futures for May delivery were up 48 cents, or 0.6%, at $82.69 a barrel by 0936 GMT. The April U.S. crude contract rose 40 cents, or 0.5%, to $78.33.

Hopes of a ceasefire in Israel's war against Hamas have faded, with negotiations deadlocked in Cairo while the conflict threatens to widen as Israel and Lebanon's Hezbollah continue to exchange fire.

Though the Gaza conflict has not led to significant oil supply disruptions, Yemen's Iran-aligned Houthis have been attacking ships in the Red Sea and Gulf of Aden since November in a campaign of solidarity with Palestinians.

Airstrikes attributed to a U.S.-British coalition hit port cities and small towns in western Yemen on Monday and the Houthis said on Tuesday that they had fired missiles at what they described as a U.S. ship in the Red Sea.

Traders are becoming inured to such attacks, said John Evans at oil broker PVM.

"The inventory of oil that might be affected is not lost, it is just delayed - and with the new shipping times being part of the new norm, 'delayed' will eventually not be applicable," he said.

"The grind and grind of this war will continue, as will the fall away of its relevance to oil prices."

In Russia, the world's second largest oil exporter, a Ukrainian attack on energy facilities started a fire at Lukoil's NORSI refinery.

The various factors supporting oil prices are being countered, however, by the demand outlook and increasing supply from producers outside the Organization of the Petroleum Exporting Countries (OPEC).

Oil rig pumpjacks, also known as thirsty birds, extract crude from the Wilmington Field oil deposits area near Long Beach, California July 30, 2013. REUTERS/David McNew//File Photo

"Bearish demand sentiment and growing non-OPEC supply leave little room for the market to be bullish on oil prices at this time," said Serena Huang, head of APAC analysis at Vortexa.

The International Energy Agency (IEA) expects oil supply to grow to a record high of about 103.8 million barrels per day (bpd), almost entirely driven by producers outside OPEC and the wider OPEC+ group of producers. The additional supply is from countries including the United States, Brazil and Guyana.

As for China, the world's biggest oil buyer, crude imports rose in the first two months of the year compared with the same period of 2023. However, the imports were down from preceding months, continuing a trend of softening purchases.

The market is awaiting demand estimates from monthly reports by OPEC, the IEA and the Energy Information Administration, analysts from ANZ said in a note.

"While we believe the estimates will be largely unchanged, any upside surprise will ease demand concerns," they said.

(Reporting by Paul Carsten in London, Colleen Howe in Beijing and Emily Chow in SingaporeEditing by David Goodman)

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