U.S. benchmark oil futures ended lower on Tuesday, pressured by strength in the U.S. dollar and worries surrounding demand, but continued tensions in the Middle East that have disrupted tanker traffic and threatened oil supplies in the region provided support for global oil prices.
Price action
-
West Texas Intermediate crude
CL00,
-1.77% CL.1,
-1.77% CLG24,
-1.77%
for February delivery fell 28 cents, or 0.4%, to settle at $72.40 a barrel on the New York Mercantile Exchange. Nymex WTI futures didn’t settle Monday due to the Martin Luther King Jr. Day holiday. -
March Brent crude
BRN00,
-1.66% BRNH24,
-1.66% ,
the global benchmark, climbed by 14 cents, or 0.2%, at $78.29 a barrel on ICE Futures Europe, after falling 0.2% on Monday. -
February gasoline
RBG24,
-1.35%
added nearly 0.1% to $2.12 a gallon, while February heating oil
HOG24,
-0.97%
fell 0.3% to $2.66 a gallon. -
Natural gas for February delivery
NGG24,
-2.41%
settled at $2.90 per million British thermal units, down 12.5%.
Market drivers
Oil traders appear to be “more worried about demand shortfalls than supply shortfalls at the moment,” Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management, told MarketWatch.
The “terrible” U.S. Empire State business conditions index reading “suggests a slowing U.S. economy and China has been a big concern for some time,” he said.
The New York Federal Reserve’s Empire State business conditions index, a gauge of manufacturing activity, plunged 29.2 points to negative 43.7, the regional Fed bank said Tuesday.
China reports its GDP and retail sales overnight, which could impact trading into tomorrow, said Cieszynski.
Oil prices had climbed early Tuesday, with U.S. prices trading as high as $73.56, lifted by U.S. production issues.
More than half of North Dakota’s oil production was shut in because of freezing temperatures in the Midwest, Bloomberg reported Tuesday, with as much as 650,000 barrels per day offline, up from 425,000 barrels on Monday, Bloomberg reported, citing comments from the North Dakota Pipeline Authority.
Tariq Zahir, managing member at Tyche Capital Advisors, meanwhile, told MarketWatch that the weakness in oil prices Tuesday is likely to be “short lived, as the situation in the Red Sea seems to be quite unstable. For now, the U.S. dollar is contributing to weakness in oil, he said.
The ICE U.S. Dollar index
DXY
was up 1% at 103.391 in Tuesday dealings. Strength in the dollar can make dollar-priced oil more expensive to overseas buyers.
In the Middle East, Iran-backed Houthi militants operating out of Yemen on Monday vowed to continue attacking U.S. and international targets in the Red Sea in response to Israel’s operations in Gaza, news reports said. U.S. Central Command said a Houthi missile struck the Gibraltar Eagle, a U.S. bulk carrier, on Monday without causing significant injury or damage.
Oil futures rose Friday in the wake of an assault by U.S. and U.K. forces on Houthi militants, but finished well off session highs and booked weekly losses. Meanwhile, data shows tanker traffic through the Red Sea and the Bab el-Mandeb waterway, a crucial chokepoint, has fallen off significantly.
Crude had found some support around incidents in the Red Sea and near the Strait of Hormuz, but has struggled to build a geopolitical risk premium since the start of the Israel-Hamas war in October. Shipping woes have been seen as a boost for U.S. crude exports.
Read:Why Red Sea chaos is driving oil buyers ‘into the arms of U.S. shale producers’
“For commodity markets, the increased tension poses supply risks, with energy markets most vulnerable. However, for oil and LNG (liquefied natural gas), we are not seeing any fundamental impact on supply yet,” Ewa Manthey and Warren Patterson, analysts at ING, said in a note.
“In order to see oil prices breaking significantly higher, we will need to see even further escalation and/or a meaningful loss in oil supply,” they said.
In the U.S., prices for natural gas finished sharply lower even as wintry weather gripped many parts of the U.S.
The natural-gas market has seen some profit-taking, said Tyche Capital Advisors’ Zahir, but he said he sees a “buying opportunity.”
“If we see more of the recent freeze across that the country has seen in the weeks to come, we could see supplies come down rather fast,” he told MarketWatch. It will definitely be weather-related in the weeks ahead and “will be volatile.”
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