Oil prices dropped and reached below US$77 after evidencing a rebound last week. At the same time, the abundance of global crude supplies has helped to mitigate potential price increases due to growing military tensions in the Middle East.

Although markets anticipated a possible price correction, rising OPEC exports weighed on prices. According to market intelligence firm Kpler Ltd., the producer alliance’s total crude oil shipments changed little in January, indicating that promised production cuts may still be slow.

Traders believe that a firm U.S. reaction to the escalating conflict in the Middle East could boost oil prices. As the White House considers action following the drone strike by Iranian militants on three military personnel, the government in Tehran has sought to distance itself from the attack.This attack occurred on Friday when the Houthi launched missiles at a ship carrying Russian crude oil, destined for the Trafigura group, in what was the most significant attack yet on a vessel carrying energy products.

U.S. futures are up around 7% this month

U.S. futures are up about 7% this month after the escalating conflict, but the well-supplied market keeps prices in check. While the attacks in the Red Sea have caused some cargo diversions, resulting in higher transportation costs, they still need to cause shortages, and they are hurting production.

Last week, fund managers covered short positions, reducing their bearish positions to the highest level since April. In contrast, long positions have barely grown, according to traders, indicating a lack of confidence in the recent rally.