Oil prices settle higher on hopes for tighter supply

© Reuters

Investing.com– Oil prices slipped marginally Tuesday, handing back some of the prior session’s gains as fears of tighter supplies, amid continued disruptions in global shipping activity and a conflict in the Middle East, sparked a strong recovery in prices this week.

By 08:35 ET (13.35 GMT), the U.S. crude futures traded 0.3% lower at $77.36 a barrel and the Brent contract dropped 0.3% to $81.41 a barrel.

Still, crude prices remained largely within the tight range established over the past two months, as any major price gains were held back by concerns that sticky inflation and higher-for-longer interest rates will weigh on demand. 

Goldman Sachs analysts said in a recent note that they largely expected oil to remain within $70 to $90 a barrel in the near-term. 

Fresh Red Sea strikes spur concerns over shipping disruptions

U.S.-led forces conducted new strikes on the Iran-backed Yemeni Houthis in the Red Sea, after the group continued to attack ships in the region in solidarity with Palestine over the Israel-Hamas war. 

That said, U.S. President Joe Biden said on Tuesday that Israel has agreed to halt military activities in Gaza for the Muslim holy month of Ramadan, as Hamas studied a draft proposal for a truce which includes a pause in fighting and a prisoner-hostage exchange.

Fears of supply disruptions, particularly in the Middle East, have provided oil prices with a floor in recent months.

Economic data deluge on tap 

Markets were also awaiting key economic cues from several major economies this week.

Most importantly was PCE price index data, which is the Federal Reserve’s preferred inflation gauge, and is largely expected to factor into the outlook for interest rates.

A second reading on fourth-quarter U.S. GDP data is also set to provide more cues on the world’s largest economy.

Kansas City Federal Reserve Bank President Jeffrey Schmid on Monday signalled that he, like most of his central banking colleagues, is in no rush to cut interest rates. High borrowing costs typically reduce economic growth and oil demand.

Purchasing managers index data from China is also on tap this week, and is expected to factor into the economic outlook for the world’s largest oil importer. 

Recent signs of increased stimulus measures and improvements in consumer spending helped inspire some confidence over a recovery in China. 

Additionally, the American Petroleum Institute industry group’s weekly U.S. crude inventories data is due later in the session, with stocks expected to rise 1.8 million barrels, according to a Reuters survey.

(Ambar Warrick contributed to this article.)