©Reuters. FILE PHOTO: Pump jacks work at sunset in an oil field in Midland, Texas, U.S., August 22, 2018. REUTERS/Nick Oxford/File Photo
By Alex Lawler
LONDON (Reuters) – Oil stabilized on Monday as looming rate hikes by major central banks and signs of strong Russian exports balanced rising Middle East tensions over an Iran drone strike and hopes of higher Chinese demand.
Investors expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, followed the day after by half-point increases by the Bank of England and the European Central Bank, and any deviation from that script would be a shock.
“The cautious mood in the market ahead of central bank meetings is hurting risky assets, including oil,” said City Index analyst Fiona Cincotta.
rose 20 cents, or 0.2%, to $86.86 a barrel by 1110 GMT, while US West Texas Intermediate crude added 8 cents, or 0.1%, to $79.76.
“The oncoming wave of price catalysts is setting the stage for significant swings in oil prices this week,” said PVM’s Stephen Brennock. “That being said, prices are unlikely to fall below $80 and will struggle to get close to $100.”
The market also came under pressure from indications of strong Russian supply, despite an EU ban and G7 price cap imposed due to the invasion of Ukraine. Both oil benchmarks saw their first weekly loss in three last week.
In addition to central bank meetings, Wednesday will also feature a meeting of key ministers from the Russia-led Organization of Petroleum Exporting Countries and Allies, known as OPEC+.
Wednesday’s OPEC+ panel meeting is unlikely to change oil production policy – though PVM said it could surprise with a small cut.
Oil rose earlier on Monday amid tensions in the Middle East after a drone strike on oil producer Iran.
While it is not yet clear what is happening in Iran, any escalation there could disrupt oil flow, said Stefano Grasso, senior portfolio manager at 8VantEdge in Singapore.
Hopes of an increase in Chinese demand have boosted oil prices in 2023. The world’s largest crude oil importer vowed over the weekend to promote a consumption recovery that would support demand.