Middle East Ceasefire Confusion Boosts Oil As Physical Markets Tighten

Meanwhile, OPEC is expected to support prices well beyond Q1: File Image/Pixabay

Oil prices on Tuesday edged up higher due to uncertainty over a ceasefire in the Israel/Hamas war and Red Sea attacks, as mediators sounded a note of caution and Houthi militants said their maritime hostilities would end only when Israel's "aggression" against Gaza stopped.
 
Hamas was reportedly considering a proposal agreed to by Israel for a ceasefire that would suspend fighting for 40 days but does not include Hamas's demand for a permanent end to the war and Israeli withdrawal.

Following remarks made by U.S. president Joe Biden that a ceasefire could be reached by next Monday, Israel and Hamas as well as Qatari mediators on Tuesday stressed caution about such progress.

Oil was also said to be supported by attention paid to the Organization of the Petroleum Exporting Countries (OPEC) making a decision in March on whether to extend voluntary production cuts and boost prices.

Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a note, "We expect OPEC+ to announce the rollover of voluntary production quotas, at least until the June Ministerial Meeting, to provide additional support."

Similarly, Manish Raj, managing director at Velandera Energy Partners, told CNBC, "There is no chance OPEC and its leader Saudi Arabia will throw in the towel and terminate the production cuts, so the crystal ball is showing continuation of cuts well beyond Q1."

Despite oil's rangebound status, the global market seems to be tightening, and this was reflected by WTI's prompt spread — the price difference between its two nearest contracts — widening to 55 cents in backwardation, up from the bearish contango structure less than a month ago.

As of 1639 GMT Tuesday, Brent was up 77 cents at $83.3 per barrel, while West Texas Intermediate was up 88 cents at $78.45.