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Oil prices traded higher on Monday as the U.S. vowed continued strikes on Yemen’s Houthis, while Chinese economic data fueled optimism for stronger demand.
- Brent crude: +0.9% to $71.21/barrel
- WTI crude: +0.9% to $67.80/barrel
Key Drivers Behind the Oil Price Surge
1. U.S. Military Action Against Houthis
- President Donald Trump launched airstrikes on Saturday in response to Houthi attacks on Red Sea shipping lanes.
- U.S. officials suggest the military campaign could last for weeks.
- The Red Sea accounts for 15% of global shipping traffic, raising concerns over potential supply disruptions.
2. China’s Economic Data Boosts Demand Outlook
- Retail sales growth in January-February accelerated, signaling improved consumer spending.
- Factory output slowed, and unemployment rose, but policymakers remain optimistic about domestic demand recovery.
Market Pressures and Balancing Factors
1. OPEC+ Production Increase
- OPEC+ will raise oil output starting in April, adding supply-side pressure.
- However, analysts believe that tighter U.S. sanctions on Iran will offset the increase in OPEC+ production.
2. Ukraine Peace Talks Weigh on Prices
- Trump plans to speak with Putin on Tuesday to discuss ending the Russia-Ukraine war.
- A potential de-escalation in Ukraine could reduce geopolitical risk premiums in energy markets.
Outlook
Despite escalating tensions in the Middle East, oil remains under pressure due to global economic concerns and OPEC+ supply adjustments. However, strong Chinese demand and geopolitical risks continue to provide upside support.
