Oil set for best week since October on rising geopolitical risks

Oil headed for the biggest weekly gain since October on sustained geopolitical tensions, lower US crude stockpiles, and prospects for additional government stimulus in key crude importer China.

Global benchmark Brent was near $82 a barrel after jumping 3% in the previous session in an initial breakout from its narrow recent range. West Texas Intermediate held near $77 a barrel, trading near a two-month high.

The backdrop to crude’s advance has been elevated tensions in the Middle East, with the US striking Iran-backed Houthi rebels in Yemen to force them to halt attacks on commercial shipping. Elsewhere, strikes on refineries in Russia endangered crude flows as the war in Ukraine drags on.

Oil has gained more than 7% in January, with additional support from the unexpectedly large draw in US inventories and efforts by Chinese policymakers to shore up the economy. Still, many traders remain cautious given prospects for robust supply from non-OPEC producers, as well as slower demand growth in major importers including India.

“Previous intervention efforts to deter attacks in the Red Sea have not helped to prevent disruptions,” said Yeap Jun Rong, market strategist at IG Asia Pte. That’s led participants to price in the tensions for longer, he said, adding that the lower US inventories and strong US GDP data also boosted sentiment.

There’s been a marked widening in some of crude’s closely watched timespreads, signaling tighter conditions. Brent’s three-month spread has gapped out to $1.25 a barrel in backwardation, a bullish pattern. That’s up from a differential of just 16 cents a barrel at the start of the month.

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