Oil Steadies as Geopolitical Tensions Rise Before OPEC+ Meeting

(Bloomberg) -- Oil steadied after two days of gains even as tensions in the Middle East ratcheted higher following the death of an Egyptian soldier during a clash with Israeli troops. 

Global benchmark Brent held above $83 a barrel, while West Texas Intermediate edged toward $79. Egypt’s military confirmed that a border guard died at the Rafah crossing into Gaza on Monday, which could escalate tensions with Israel.

Oil has risen this year on persistent geopolitical risks and OPEC+’s roughly 2 million barrels a day of output cuts, which the group is expected to prolong into the second half of 2024 at a meeting on Sunday. Prices have dipped since early April on weakening demand from Asia, causing Brent’s prompt spread to get close to a bearish contango structure that indicates supply is increasing relative to consumption.

“A confluence of factors suggest some upside sensitivity in oil — from fraught geopolitics to inventory drawdown to OPEC’s assumed preference to maintain curbs,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank Ltd. However, “the Gaza situation is only a warning not to be aggressively short, but not quite the unbridled bullish trigger.”

The death of the Egyptian soldier, which followed Israeli airstrikes on Sunday on a camp for displaced people that were condemned by governments across the world, is an added risk to oil markets, but the conflict has largely stayed contained so far. There has been no major disruption to crude flows from the Middle East — which accounts for about a third of global output — although Houthi attacks in the Red Sea have led to the rerouting of some supply.

Investors will also be looking for signs of US fuel demand data after the Memorial Day holiday, which traditionally marks the start of the peak summer driving season.

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