Oil prices edged higher amid the Red Sea crisis and weak fundamentals

Oil prices edged higher as the U.S. and its allies’ airstrikes against the Houthis could trigger a broader conflict and disrupt Middle East crude supplies, but weak fundamentals offset this risk. The reaction of oil prices suggests that the current market believes that the evolving conflict is unlikely to spill over and jeopardize oil production and oil supplies throughout the Middle East. Conversely, the prospect of increased supply and slower demand growth in non-OPEC countries appears to be more important. Warren Patterson, head of commodity strategy at ING, said that developments in the Red Sea region have not yet had an impact on oil supply. In the absence of supply disruptions, the oil market remained comfortable in the first half of the year, despite heightened tensions. The situation in the crude oil market seems to be grim this year. While demand is still growing, the pace of growth is expected to slow significantly as the post-pandemic rebound fades. There are also questions about whether the production cuts announced by OPEC and its allies will be enough to offset the impending oversupply.