Oil futures climbed on Tuesday, lifted by a report that said Saudi Arabia is on high alert for a potential Iranian attack.
Traders also continued to weigh prospects for energy demand from China o n the heels of unconfirmed rumors that the country may ease COVID curbs.
West Texas Intermediate crude for December delivery
rose $1.99, or 2.3%, to $88.52 a barrel on the New York Mercantile Exchange after tapping an intraday high of $89.45.
January Brent crude
the global benchmark, was up $2.03, or 2.2%, at $94.84 a barrel on ICE Futures Europe.
Back on Nymex, December gasoline
rose 3.1% to $2.6029 a gallon, while December heating oil
ticked down 1% at $3.6389 a gallon.
December natural gas
declined by 10.8% to $5.667 per million British thermal units after the contract climbed by nearly 12% on Monday.
Oil prices climbed on Tuesday, adding to early gains after The Wall Street Journal reported that Saudi Arabia shared intelligence with the U.S., warning of an Iranian attack on targets in the kingdom. The news raised the prospect of disruptions to the oil market in the oil-rich Middle East.
In response to the warning, Saudi Arabia, the U.S. and several other neighboring states raised alert levels for their military forces, the report said. Iran was poised to carry out attacks on Saudi Arabia, as well as Erbil, Iraq, to distract attention from domestic protests in the nation that began in September, the report said, citing Saudi officials.
Oil prices were already moving higher, with support Tuesday likely originating from reports that China may reopen, said Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.
The news report of the U.S. on high alert and a potential attack by Iran on Saudi Arabia “definitely raises the risk factor,” said Flynn. “It sure makes you miss all that [U.S.] Strategic Petroleum Reserve oil that we sold.”
“ The news report of the U.S. on high alert and a potential attack by Iran on Saudi Arabia “definitely raises the risk factor. It sure makes you miss all that [U.S.] Strategic Petroleum Reserve oil that we sold.” ”
— Phil Flynn, The Price Futures Group
Separately, The Wall Street Journal reported Tuesday that Hong Kong stocks appeared to be rallying after an anonymous post on Chinese social media suggested that the government may intend to soften pandemic-related restrictions beginning in March. Other outlets also reported on the rumor.
See: Alibaba and Nio among Chinese stocks surging as hopes build about potential reopening
China’s COVID restrictions have been seen as a lid on oil prices, limiting demand for crude from one of the world’s largest energy consumers.
Investors have expressed concern about the demand outlook for next year, primarily through the lens of weaker China economic data “directly attributable” to the nation’s zero-COVID policy, said Stephen Innes, managing partner, at SPI Asset Management, in market commentary.
Innes, however, said he sees China as “more as a driver of upside oil demand at some point next year, when the reopening of the economy accelerates, rather than as an incremental driver of demand weakness.”
WTI rose 8.9% in October, based on front-month contracts, while Brent gained 7.8%, with some support attributed to a decision by the Organization of the Petroleum Exporting Countries and its Russia-led allies, a combo known as OPEC+, to cut output by 2 million barrels a day beginning in November. The actual cut is expected to be around half that given that several members were already producing below their targets.
“Clearly, announced OPEC+ supply cuts have stabilized the oil market to a certain extent. However, how stabilizing this action will be in the medium to long term will really depend on the full impact of the EU’s ban on Russian oil,” which comes into effect on Dec. 5 for crude oil and Feb. 5 for refined products, said Warren Patterson, head of commodities strategy at ING, in a note.
For now, prices for U.S. benchmark WTI crude are still rangebound, with futures “bookended by support at $78 and resistance at $93,” analysts at Sevens Report Research wrote in Tuesday’s newsletter. “Given pretty even supply and demand fundamentals right now, that range should hold until there is a broader shift in macroeconomics.”