Oil prices settle higher as bets on tighter supply; Gaza ceasefire unlikely

© Reuters.

Investing.com– Oil prices rose Monday on heightened supply concerns, amid easing expectations of an Israel-Hamas ceasefire was imminent and as hostilities intensified between Russia and Ukraine. 

At 08:45 ET (12:45 GMT), Brent oil futures rose 0.4% to $85.13 a barrel, while West Texas Intermediate crude futures rose 0.4% to $80.92 a barrel. 

Gaza ceasefire looks unlikely 

Crude prices had fallen from four-month highs last week on a stronger dollar and amid increasing speculation over a Gaza ceasefire for the Muslim holy month of Ramadan. But a U.S.-led United Nations resolution was vetoed by Russia and China on Friday. 

The United Nations Security Council will later Monday vote on an alternative resolution for an immediate ceasefire in the Gaza strip for Ramadan, as well as the release of all hostages by Hamas. 

The resolution was tabled almost immediately after China and Russia vetoed a U.S.-led resolution,.

However, the success of this new resolution remains in doubt with Israeli forces pressing on with their offensive in Gaza. 

A deescalation in the Israel-Hamas conflict is expected to soothe concerns over geopolitical instability in the Middle East- which could potentially disrupt crude supplies from the region. This notion has been a key support of oil prices in recent months.

Oil supply outlook remains tight 

On the supply front, reduced Russian fuel output, following Ukrainian strikes on major refineries, pointed to lower oil product supplies in the coming months. The Russia-Ukraine war also showed few signs of stopping. 

“Continued drone attacks by Ukraine on Russian oil refineries keep the risk premium for the oil market higher,” analysts at ING said, in a note.

U.S. inventories were seen steadily shrinking in recent weeks, with steady drawdowns in fuel inventories also reflecting improved demand in the world’s largest oil consumer. 

U.S. oil rigs fell by one in the past week, indicating weaker production, while increased travel demand also saw jet fuel consumption increase.

The prospect of tighter supplies put oil prices at four-month highs earlier in March, and also saw crude prices trade positive for the year to date. 

(Ambar Warrick contributed to this article.)