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HomeLatestOil Prices Rebound Amid Tight Supply Prospects Despite Easing Middle East Tensions
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Oil Prices Rebound Amid Tight Supply Prospects Despite Easing Middle East Tensions

Oil prices rallied in Asian trading on Tuesday, bouncing back from recent declines as market participants anticipated potential supply constraints in the coming months. This recovery occurred despite a reduction in concerns over escalating tensions between Iran and Israel, which had previously supported crude prices.

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On Monday, crude prices had dipped to over three-week lows amid growing confidence that the conflict between Iran and Israel would not escalate into a full-scale war. However, traders remained optimistic about the short-term outlook for oil markets, citing recent production cuts from Russia and increased U.S. fuel demand as significant factors contributing to potential supply tightening.

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Brent oil futures for June delivery climbed by 0.4% to reach $87.39 a barrel, while West Texas Intermediate crude futures also saw gains, rising by 0.5% to $82.32 a barrel by 20:53 ET (00:53 GMT). Both contracts had touched over three-week lows on Monday but rebounded from those levels by the end of the day.

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Market participants began to gradually factor out a risk premium from oil prices as Iran showed little indication of immediate retaliation against Israel for a recent strike and downplayed the impact of the attack. This development contributed to hopes for a de-escalation of hostilities between the two countries, presenting a more stable outlook for geopolitical conditions in the Middle East.

While fears of an Iran-Israel conflict had previously driven oil prices to near six-month highs earlier in April, the likelihood of such an event now appeared diminished. However, the potential for further aggression remained, particularly as Israel continued its strikes against Gaza and Iraqi-based groups threatened to increase missile strikes against the U.S. and its allies in the region.

Despite the recent pullback in prices, oil markets remained relatively buoyant due to expectations of tighter supplies in the coming months. Russia’s decision to reduce fuel exports following strikes on its major refineries and OPEC+’s commitment to maintaining production cuts until at least the end of June contributed to these expectations. Additionally, the U.S. preparing tighter restrictions on oil exports from Iran further supported bets on tighter supplies. However, the extent of these restrictions remained uncertain, particularly given the Biden administration’s concerns about high gasoline prices domestically.

As the U.S. driving season approaches, increased demand for fuel is anticipated in the world’s largest fuel consumer. Recent upticks in U.S. refinery activity and declining gasoline inventories in the country further underscored expectations of rising demand, contributing to the positive sentiment in oil markets despite recent geopolitical developments.

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