Oil Prices Inch Higher After U.S. Signals Further Strikes in the Middle East

Crude oil prices started trade this week with a gain amid indications that the United States plans further military action in the Middle East and that the Yemeni Houthis have no plans to stop shooting at ships in the Red Sea.

However, gains were constrained by reports about ceasefire talks between Hamas and Israel. For now, these reports appear to have a greater effect on prices than U.S. plans for more strikes against Iran-linked groups across the Middle East.

"Given the US military strikes avoid directly attacking Iran, we think the Israel?Hamas ceasefire talks will have the more dominant effect ? thereby reducing Middle?East tensions," Vivek Dhar, commodity analyst with the Commonwealth Bank, said in a note earlier today, as quoted Reuters.

Dhar also forecast Brent crude remaining below $80 per barrel as traders focus on possible oversupply risks later this year.

ING analysts Warren Patterson and Ewa Manthey, meanwhile, noted that while reports were coming in that Israel and Hamas were talking about a ceasefire, one did not appear imminent. At the same time, the escalating violence in the region had not yet affected physical oil supply, which also acted as a lid on prices amid comfortable supply levels.

“However, this could quickly change if tensions spread to other parts of the Middle East,” the experts wrote.

The U.S. attacked Yemeni targets over the weekend in what was the most intense attack on the Houthis since the first one that the U.S. undertook together with its UK partners.

It has also signaled it will continue targeting various Middle Eastern groups linked to Iran as well as Iranian troops in Iraq and Syria, stopping short, however, of directly attacking the latter. Bloomberg cited U.S. officials as saying Washington had no intention of getting dragged into a prolonged war in the Middle East.

By Irina Slav for Oilprice.com

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