By Oil prices extended gains from the previous sessions amid rising tensions between Israel and Lebanon-based Hezbollah.
Prices have been largely rangebound over the last six trading sessions. However, geopolitical tensions have raised concerns about supply disruptions.
On Wednesday, oil’s momentum was slightly stalled as the American Petroleum Institute reported an unexpected increase in US inventories last week.
The market also remained on its toes before the ministerial meeting of the Organization of the Petroleum Exporting Countries and allies on Thursday.
However, further upside in prices is likely to be limited as a likely extension of the production cuts has been factored in already, according to analysts.
At the time of writing, the price of West Texas Intermediate crude on the New York Mercantile Exchange was $70.12 per barrel, up 0.3% from the previous close. Brent crude oil was at $73.80 per barrel, also up 0.3%.
Israel-Lebanon tensions raise supply fears
Fears about further escalations in tensions in the Middle East were exacerbated after Israel threatened to attack Lebanon on Tuesday if the ceasefire with Hezbollah fell through.
Israel and militant outfit Hezbollah signed a ceasefire agreement last week, which was brokered by the US President Joe Biden.
Since the ceasefire agreement was signed last week, both parties have accused each other of violations.
Both sides have also carried out strikes over the last few days even after signing the agreement.
David Morrison, senior market analyst at Trade Nation, said:
Geopolitically, the ceasefire between Israel and Hezbollah in Lebanon is barely holding, with both sides claiming breaches by the other.
Israeli Defence Minister Israel Katz threatened to hold Lebanon responsible for not disarming Hezbollah.
Against these developments, supply concerns remained in the Middle East, which holds more than half of the world’s oil reserves.
US inventories build more than expected
Oil inventories in the US rose 1.2 million barrels for the week ended November 29.
The rise was against expectations of a fall in stockpiles by 2.1 million barrels last week.
The build-in inventories weighed on sentiments in the oil market slightly.
The oil market will now wait for the official weekly inventory report by the US Energy Information Administration later on Wednesday.
“If the data reveals a larger-than-expected inventory build, it may signal weaker demand or oversupply, likely putting downward pressure on oil prices,” Zain Vawda, market analyst at OANDA, said in a note.
Conversely, a substantial draw in inventories could highlight tighter supply conditions and potentially trigger a price rally.
OPEC+ meeting in focus
Experts have said that oil prices may trade rangebound ahead of the OPEC+ meeting on Thursday.
Analysts and reports have claimed that the cartel may extend its steep voluntary production cuts of 2.2 million barrels per day till the end of March.
The decision would be stemmed from the fact that supply is likely to outstrip demand next year, while global consumption of the commodity remains muted.
The group had been extending the production cuts, which were originally set to expire in June 2024.
“As this would be largely in line with market expectations, the impact on the oil price is likely to be neutral. Nevertheless, there are still uncertainties,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report.
Fritsch added:
The United Arab Emirates would also need to agree to a postponement, as they were granted a gradual increase in oil production totalling 300 thousand barrels per day six months ago, which was set to begin in January.
Fritsch said it will be difficult for the cartel to come to a joint agreement and extend cuts for another three months, especially while the UAE is allowed to raise production.
Iraq, on the other hand, reduced its production and thus came as close as 50,000 barrels per day to the output target, if the compensatory cuts are not factored in.
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