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Oil Stabilizes as Geopolitical Tensions Rise Ahead of OPEC+ Meeting

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(Bloomberg) — Oil stabilized after two days of gains, even as tensions rose in the Middle East following the death of an Egyptian soldier during a clash with Israeli troops.

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Global benchmark Brent remained near $83 per barrel, while West Texas Intermediate rose to $79. The Egyptian military confirmed that a border guard died at the Rafah crossing into Gaza on Monday, which could increase tensions with Israel.

Oil has risen this year due to persistent geopolitical risks and production cuts of around 2 million barrels per day by OPEC+, which the group is expected to extend until the second half of 2024 at a meeting on Sunday. Prices have fallen since the beginning of April due to weakening demand from Asia, causing Brent’s immediate spread to approach a bearish contango structure that indicates supply is increasing relative to consumption.

“A confluence of factors suggests some upside sensitivity in oil – from tense geopolitics to dwindling inventories and OPEC’s presumed preference to maintain restrictions,” said Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank. Ltd. just a warning not to be aggressively shorted, but not exactly the trigger for runaway bullishness.”

The death of the Egyptian soldier, which followed Sunday’s Israeli airstrikes on a camp for displaced people that were condemned by governments around the world, is a further risk to oil markets, but the conflict has remained largely contained so far. There have been no major disruptions to oil flows from the Middle East – which represent around a third of global production – although Houthi attacks in the Red Sea have led to the rerouting of some supplies.

Investors will also be looking for signals from data on U.S. fuel demand after the Memorial Day holiday, which traditionally marks the start of the peak summer driving season.

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