Oil ticks down in Asian trade despite rising Middle East tensions

Following advances in the previous session amid an intensifying crisis in the Middle East, oil prices marginally declined in early Asian trade on Wednesday due to persistently negative fundamentals. By 0146 GMT, the March Brent crude futures, which expire today, had dropped 37 cents to $82.50 a barrel. The April contract, which is traded more often, dropped 24 cents to $82.26 per barrel. At $77.64, US West Texas Intermediate crude dropped 18 cents. “The main issue with turning outright bullish on crude oil here is the technical picture remains bearish and is yet to catch up with recent events,” including a deadly drone attack on US troops near the Jordan-Syria border last week, said Tony Sycamore, a market analyst with IG. But ANZ analysts said in a note that “a strong military response from the US” to the drone attack “could still trigger a strong reaction from the market.” Without providing more information, President Biden stated that he had chosen how to react to the incident and that he hoped to prevent a larger conflict in the Middle East. The US Pentagon had speculated that the Iran-aligned Iraqi armed organisation Kataib Hezbollah would be responsible for the strikes, but no definitive assessment had been made. On Tuesday, the group proclaimed the cessation of all military actions against US forces in the area. Regarding the Israeli-Palestinian conflict, Hamas announced on Tuesday that it had obtained a ceasefire proposal and was examining it. It seemed to be the most significant peace attempt since the first and only short truce in the war, which broke down in November. But Sycamore said the market was concerned that a ceasefire in Gaza would not necessarily put a halt to attacks by Iran-backed Houthis on ships in the Red Sea, which have disrupted global shipping and oil trading. Bearish factors include a deepening crisis in China’s real estate sector following the liquidation of property company China Evergrande Group, which has raised concerns about demand from the world’s largest crude importer. Markets are also awaiting the release of China’s PMI data on Wednesday, which will likely show a contraction for the fourth straight month.