Oil prices settled lower as supply concerns overshadow fresh geopolitical jitters

Investing.com — Oil prices settled lower Monday, as ongoing doubts over whether recent OPEC+ output cut agreements will curb growing supply offset potential disruptions in the Middle East amid looming geopolitical risks.

 By 14:30 ET (19:30 GMT), the settled 1.4% lower at $73.04 a barrel and the contract dropped 1.1% to $78.03 a barrel. 

Red Sea attacks see resurgence in Middle East supply concerns 

The Pentagon said over the weekend that multiple U.S. military and commercial vessels were attacked in the Red Sea, while Yemen’s Houthi Group claimed it had carried out drone and missile attacks on Israeli vessels in the area. 

Concerns surrounding the Israel-Hamas war had steadily trickled out of markets over the past month, as the conflict had so far caused little disruptions in Middle Eastern supplies. 

But the new attacks could herald a potential spillover of the conflict, drawing in the U.S. and other Middle Eastern powers and potentially disrupting supplies at time when a week-long truce between Israel and Hamas collapsed, sparking a resumption in the war. 

“Crude oil price near USD80/bbl looks underpriced as market is in deficit and inventories are low. Further, geopolitical risks are still looming, a wider conflict in the Middle East will be a potential downside supply risk,” ANZ Research said in a note. “If the US tightens its sanctions against Iran and Russia and OPEC+ voluntary cuts go as per plan, this severely tighten the market balance. ”   

Skepticism over OPEC’s voluntary cuts continues to weigh

The crude market fell around 2% last week after the Organization of the Petroleum Exporting Countries and allies, including Russia, a group known as OPEC+, agreed new additional cuts of a little under 900 million barrels a day in the first quarter of 2024.

However, these cuts were voluntary in nature, raising doubts about whether or not producers would fully implement them as they still require the funds generated by the sale of these barrels.

“The announcement from the OPEC+ meeting failed to convince the market about a tighter oil balance in the immediate term,” said analysts at ING, in a note. “Pessimism over compliance with the new deal remains one of the major concerns for the market for now.”

(Peter Nurse, Ambar Warrick contributed to this article.)