Oil prices stabilized as the market awaited a US response to attacking its forces in Jordan, which may threaten to escalate tensions in a major crude production region.
Brent crude oil traded above $82 a barrel after losing 1.4% yesterday, Monday, despite the drone attack on American soldiers, which Iran sought to distance itself from. Data shows that OPEC+ appears to be slow to cut production, putting downward pressure on prices. West Texas Intermediate crude rose on Tuesday.
The White House is seeking a response strong enough to deter Iran and its proxies without provoking a direct war with Tehran, according to officials and experts. The challenge for President Joe Biden is to show intensity in his response without triggering a jump in oil prices in an election year.
Oil is headed for monthly gains after an escalation of hostilities by Yemen-based Houthi rebels on commercial ships in the Red Sea, including an attack on a fuel tanker on Friday. However, strong supplies from non-OPEC producers and concerns about demand weighed on the outlook.
Biden is facing pressure from some Republicans to strike Iran directly, but the most likely scenario is to target Iran's allies outside the country. John Kirby, spokesman for the US National Security Council, said that the president met with the national security team on Sunday and Monday and is considering the options available to him.
The US response will be key, said Daniel Haynes, chief commodities strategist at ANZ Group Holdings Ltd. The market's view on risks to supply has certainly changed in recent days.
