Oil recovers from steep drop as prices struggle to break range

Oil recovered from its biggest drop in a month but struggled to break out of a broad trading range, as sluggish physical markets counter supply risks in the Red Sea and Libya.

Global benchmark Brent traded above $77 a barrel after tumbling 3.4% on Monday to unwind all of the previous week’s gains. Saudi Arabia reduced its prices more than had been expected, a nod to recent weakness in physical markets. A recent outage at Libya’s largest field offered some support, however.

Despite choppy moves in crude over recent days, futures have been trading in a broad range since the start of December. A relatively lackluster physical market has been offset by the attacks on merchant shipping in the Red Sea and the field shutdown in Libya.

Traders will later Tuesday get further insight into crude’s prospects over the coming quarters when the Energy Information Administration releases its Short-Term Energy Outlook. The forecasts for US oil production will be among the key takeaways after supply swelled to a record last year.

“The tug of war continues,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “The selling appetite below $75 in Brent and $70 WTI looks limited.”

Recent days have also seen a surge in oil tanker rates, as one Asian shipper sparked a frenzy by hiring a slew of vessels. The move has tightened the availability of the world’s largest tankers, and led to the biggest one-day gain in the cost of hauling oil from the US to China since November 2022. High freight rates can sometimes make it difficult to send cargoes over long distances.

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