H.G Markets:

Oil prices rebounded in Asian trading on Wednesday, driven by concerns over attacks on shipping in the Red Sea and growing expectations that U.S. interest rate cuts will be delayed. Brent crude futures rose by 30 cents, or 0.36%, to $82.64 a barrel, while U.S. West Texas Intermediate crude futures (WTI) were up 26 cents, or 0.34%, at $77.3. This followed a 1.5% decline in Brent and a 1.4% drop in WTI from near three-week highs on Tuesday. The premium for prompt U.S. crude futures over the second-month contract more than doubled to $1.71 a barrel, its widest level in roughly four months, encouraging energy companies to sell now rather than store product for future months. The premiums slid to 4 cents a barrel on Wednesday.

Founder of oil market analysis provider Vanda Insights, Vandana Hari noted that crude futures prices have become relatively range-bound, with at least $6-7 per barrel of risk premium embedded at current levels. Prices could remain range-bound until the next turning point in the Gaza crisis, whether that is a de-escalation through a ceasefire or an exacerbation by Israel’s actions in Rafah. Concerns over freight flows through the critical waterway persist following attacks in support of the Palestinians on vessels in the Red Sea and Bab al-Mandab strait by Yemen’s Iran-aligned Houthis. Since Friday, drone and missile strikes have hit at least four vessels.

On the geopolitical front, Washington again vetoed a draft United Nations Security Council resolution on the Israel-Hamas conflict, blocking a demand for an immediate humanitarian ceasefire. The U.S. is instead advocating for a resolution tying a ceasefire to the release of Israeli hostages by Hamas. In terms of production cuts, Russia, which has pledged output cuts of 500,000 barrels per day (bpd) as part of a deal with OPEC and its allies (OPEC+), intends to fulfill its OPEC+ quota in February despite a decline in oil refining. Russia’s energy minister stated that refinery throughput in the country has fallen by 7% since the start of the year, following damage from Ukrainian drone attacks.

Concerns about the timing of rate cuts by the Federal Reserve have also impacted the outlook for oil demand. U.S. inflation data released last week pushed back expectations for an imminent start to the Fed’s easing cycle, with economists now forecasting a cut in June. A preliminary Reuter’s poll showed that U.S. crude inventories were expected to rise last week, while distillates and gasoline stockpiles were seen dropping. Analysts estimated on average that crude inventories rose by about 4.3 million barrels in the week to Feb. 16.