Oil steadies as Middle East tensions offset economy concerns

Oil steadied on January 10, giving up most of its earlier gains, as Middle East supply concerns arising from the Israel-Hamas war and the shutdown of a top Libyan oilfield balanced rising U.S. output and worries about weak economic growth.

While the Organization of the Petroleum Exporting Countries and allies are cutting production to bolster the market, U.S. crude production will hit a record high in 2024, the Energy Information Administration said on January 9, according to Reuters.

Brent crude futures were up 5 cents to $77.64 per barrel at 1050 GMT, while U.S. West Texas Intermediate crude futures were down 17 cents, or 0.2%, to $72.07.

"Oil prices continue to trade in an untrustworthy fashion," said John Evans of oil broker PVM. "It seems that thinking can never wander far from the sick man that is Europe."

Europe's weak economic outlook weighed on the demand outlook. The euro zone may have been in recession last quarter and prospects remain weak, European Central Bank Vice President Luis de Guindos said on January 10.

On January 9, crude gained about 2% after losses on January 8 of more than 3%. On January 7, Libya's National Oil Corporation (NOC) declared force majeure at its Sharara oilfield, which can produce up to 300,000 barrels per day.

"With the U.S. producing at record levels and Saudi Arabia cutting prices amid competition and concerns about supply overhang, any further advances could stay limited and short-lived," said Charalampos Pissouros, senior investment analyst at XM.

More attacks on shipping in the Red Sea by Yemen's Houthi militia in support of the Palestinians on January 9 and potential disruptions to oil tanker flows in the area also lent support.

A report from industry group the American Petroleum Institute showed a bigger-than-expected drop in crude inventories in the world's biggest oil consumer, but this was offset by rising supplies of refined products.

After Tuesday's (January 9) API report, official U.S. inventory figures from the Department of Energy will be in focus at 1530 GMT to see if they show the same pattern of stock changes.