Crude Oil Tug-of-War: Risk Premium vs. Demand Fears

The United States has hinted at taking additional measures against the Houthi armed group, but the resumption of Libya's largest oilfield and the potential deterioration of oil market demand prospects have inclined crude oil prices to...

On Monday, due to the resumption of production at Libya's largest oilfield by OPEC member Libya, the international crude oil price fell by up to 1% during the day and is currently close to flat.

Libya's National Oil Corporation previously announced that the Sharara oilfield, with a daily production of about 270,000 barrels, will resume production after a three-week shutdown. This move has boosted global supply and overshadowed traders' concerns that tensions in the Red Sea could lead to supply disruptions.

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Meanwhile, in other parts of the Middle East, traders expect that shipping in the Red Sea and Suez Canal will be disrupted for a long time as the United States tries to prevent attacks on ships by Iran-backed Houthi militants in Yemen. White House Deputy National Security Advisor Jon Finer said that it would take time to take military action to prevent Houthi attacks, implying that Washington may take additional measures in the coming days.

In Europe, a fire occurred at the weekend at the plant of Russia's largest liquefied natural gas producer, Novatek PJSC, located at the Baltic Sea port of Ust-Luga, leading to an interruption in fuel production. Ukrainian media believe that the fire is related to Kiev's special forces. As the conflict between Russia and Ukraine approaches its second anniversary, this incident has once again drawn attention to the conflict.

This year, crude oil prices have been struggling to find direction, alternating between weekly gains and losses. The reason for this seesaw pattern is that the impact of tensions in the Middle East (including the war between Israel and Hamas in the Gaza Strip) is offset by expectations that the oil market will maintain ample supply.

Vandana Hari, founder of Singaporean analysis firm Vanda Insights, said that the oil market has already taken into account the impact of disruptions to Red Sea shipping and the Israel-Hamas conflict. She said, "In the absence of any significant escalation in the situation, crude oil will fluctuate within a range and face some downward pressure."

IG analyst Tony Sycamore said, "Despite the ongoing geopolitical tensions in Europe and the Middle East, oil prices remain low, which fully illustrates the current sentiment in the crude oil market.

"The fundamentals are still a resistance to prices," he said, "Oil production is increasing, Europe's growth prospects are at best mixed, and this week's GDP data is expected to show that the US economic growth has slowed significantly."

Expectations for several key economic data in the coming week have made the market, which is already worried about demand, even more nervous. In addition, the cold weather across the United States has caused more disruptions, restricting travel in most parts of the country, indicating that demand in the world's largest fuel-consuming country will weaken. The weekly update of increased US oil product inventories has also intensified this concern.Last week, the International Energy Agency (IEA) highlighted an increase in oil production from regions outside OPEC, while demand growth is slowing down.