Oil started the week on the rise

Oil rose as soft fundamentals offset the risk that U.S. and allied airstrikes against the Houthis could trigger a wider conflict and disrupt crude flows from the Middle East. Brent crude rose to $79 a barrel and U.S. crude approached $73 after the U.S. launched a new strike on a radar facility following initial strikes on targets in Yemen. The global index was up more than 4% at one point on Friday before finishing the session with a relatively modest 1.1% gain. The price reaction suggests that at this point the market is not seeing a high likelihood that the conflict will spread and jeopardize crude production and flows from the Middle East, which accounts for about a third of the world’s oil. Instead, the primary focus is on rising supplies from non-OPEC countries and slowing demand growth. “For now, developments in the region have no impact on oil supplies and, barring supply disruptions, the oil market remains comfortable in the first half of the year despite the rising tensions,” said Warren Patterson, head of commodity strategy at ING Groep NV. The outlook for crude oil looks tough this year. While demand is still rising, it is expected to grow at a significantly slower pace as the post-pandemic recovery fades. There are also questions about whether the production cuts announced by the Organization of the Petroleum Exporting Countries and its allies will be enough to offset the looming glut.