Oil prices finish higher as traders weigh potential for disruptions to Middle East supplies

By Myra P. Saefong and Isabel Wang

EIA will release its weekly U.S. inventory data Wednesday

Oil futures finished higher on Tuesday as traders continued to monitor developments in the Middle East and weighed the potential that tensions in the oil-rich region could lead to disruptions in the world's crude supplies.

Price action

West Texas Intermediate crude for June delivery CL.1 CL00 CLM24 climbed by $1.46, or 1.8%, to settle at $83.36 a barrel on the New York Mercantile Exchange.June Brent crude BRN00 BRNM24, the global benchmark, added $1.42, or 1.6%, to $88.42 a barrel. Brent and WTI both settled at their highest in a week, according to Dow Jones Market Data. May gasoline RBK24 climbed 1.5% to $2.73 a gallon, while May heating oil HOK24 added 0.7% to $2.58 a gallon.Natural gas for May NGK24 climbed by 1.2% to $1.81 per million British thermal units.

Market drivers

The conflict in the Middle East has "undoubtedly exacerbated tensions in an already volatile region," Stephen Innes, managing partner at SPI Asset Management, told MarketWatch. "While the recent attacks have been downplayed, the potential for further escalation cannot be entirely dismissed."

However, "there's a lesson to be gleaned from this situation, particularly in how swiftly demand responded to higher oil and gasoline prices, as evidenced by the increase in U.S. oil stockpiles," he said.

On Tuesday, Brent ended above $88 a barrel and West Texas Intermediate topped $83 per barrel, giving up early losses that came in the wake of a Bloomberg report that said fresh U.S. sanctions targeting vessels and refineries handling Iranian oil shipments were having a muted impact on crude supply.

The U.S. and U.K. on Thursday imposed a new round of sanctions on Iran as concern grows that Tehran's unprecedented attack on Israel could fuel a wider war in the region.

However, oil-market analysts said the Biden administration is unlikely to strongly enforce the restrictions in an election year. The president may also use waivers to limit the price impact, Bloomberg reported on Monday.

Amid the uncertainty surrounding crude oil prices, Innes believes Brent crude will likely stabilize around $85 per barrel.

"This outlook reflects a balanced perspective on both upside and downside risks, especially considering that current oil-price levels are likely aligned with the preferences of major oil producers like Saudi Arabia," Innes said. This equilibrium represents a desirable scenario for OPEC+, which is made up of the Organization of the Petroleum Exporting Countries and its allies, as the group "seeks to avoid demand destruction that could result from excessively high prices," he said.

"While the possibility of further escalation in Eastern Europe and the Middle East remains a key factor driving upside risks in the oil market, downside risks are increasingly prominent," Innes said. "These risks primarily revolve around the potential for the market to be flooded with excess supply."

The United Arab Emirates has expressed eagerness to ramp up oil production, he said, adding that the unity of OPEC+ largely depends on Saudi Arabia's willingness to continue shouldering a significant portion of the previously announced output cuts, currently accounting for 3.1 million barrels per day of the total reduction of 5.6 million barrels per day.

Back in the U.S., traders awaited Wednesday's weekly update on domestic petroleum supplies.

On average, analysts expect the Energy Information Administration to report a decline of 2.1 million barrels in commercial crude stockpiles for the week ending April 19, according to a survey conducted by S&P Global Commodity Insights. They also forecast inventory declines of 1.1 million barrels for gasoline and 84,000 barrels for distillates.

-Myra P. Saefong -Isabel Wang

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04-23-24 1543ET

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