Oil prices settled higher on Friday as U.S. Secretary of State Antony Blinken began a week-long sweep through the Middle East in an attempt to contain regional tensions stoked by the Israel-Hamas conflict. Brent crude futures settled up $1.17, or 1.51%, at $78.76 a barrel, while U.S. West Texas Intermediate crude futures finished up $1.62, or 2.24%, at $73.81.
The increase in oil prices came after a day of losses triggered by significant increases in U.S. gasoline and distillate stocks. However, the tensions in the Middle East and the potential impact on oil supply pushed prices higher.
Shipping giant Maersk announced that it would divert all vessels away from the Red Sea due to the ongoing tensions, warning customers of potential disruptions. This move further highlighted the concerns surrounding the situation in the region.
In addition to the geopolitical factors, positive employment data from the U.S. also supported oil demand. A U.S. government report showed that employment grew in December, with more workers hired than expected. This indicated a strong demand for fuel in the coming year, as the labor market continues to improve.
John Kilduff, a partner at Again Capital LLC, stated, “With the tensions in the Middle East, the geopolitical trading premium has to get pushed higher. It’s hard for traders to fight the headlines.” Kilduff also highlighted the impact of strong employment on fuel demand, further supporting the upward momentum in oil prices.
Bank of America, however, took a defensive stance toward oil stocks due to its long-term price forecast for oil. The bank expects the $70-$90 a barrel Brent trading range, which has been in place since OPEC intervened, to hold. It also noted that a “permanently backward oil curve steepened by spare capacity” poses a headwind for sector value.
Meanwhile, Baker Hughes, an oilfield services company, reported a decline in the count of active drilling rigs. The combined count of oil and natural gas rigs fell by one last week to 621, marking the third decline in four weeks. Crude oil drilling rigs increased by one to 501, while natural gas drilling rigs fell by two to 118.
Overall, the combination of Middle East tensions and positive employment data contributed to the rise in oil prices. While geopolitical factors continue to be a key driver, market participants are also closely monitoring supply dynamics and the long-term outlook for oil.