As geopolitical tensions simmer in the Middle East, oil prices witnessed a continued upswing on Thursday, building upon the previous day’s upward movement that saw an increase of one dollar per barrel. As investors remain on edge due to escalating crises involving Iran, OPEC’s third-largest oil producer, Brent crude futures experienced a 30 cent or 0.3% uptick, to settle at $90.78 a barrel by 0325 GMT. Concurrently, U.S. West Texas Intermediate crude futures saw a climb of 25 cents, also amounting to a 0.3% rise, reaching a price point of $86.46 a barrel.
The ongoing financial uptrend follows significant actions in the region that raised market anxieties over the possibility of an escalation in hostilities. Notably, over 1% gains in oil contracts were recorded in the previous session after an Israeli airstrike resulted in the death of three sons of a prominent Hamas leader in Gaza. This incident foments concerns that ongoing ceasefire negotiations may hit an impasse. Discussions that recently commenced between Israel and Hamas to address the conflict that spans more than half a year have thus far not yielded definitive results.
Market strategist Yeap Jun Rong from IG shed light on the situation, noting that “Prices remain sensitive to geopolitical developments in the Middle East, with market participants pricing in the risks of supply disruptions if tensions drag on.” This situation provides a counterbalance to certain risk-off sentiments that emerged overnight, as financial actors reevaluate interest rate expectations, shifting away from the forecasted June rate cut and towards the anticipation that rates will be kept elevated until September.
With higher interest rates over an extended period potentially dampening economic growth, the demand for oil could take a hit. This is juxtaposed against minutes from the U.S. Federal Reserve, which revealed heightened concern among officials that the fight against inflation may have hit a standstill. As a consequence, a more prolonged phase of tight monetary policy may be necessary to rein in the persisting inflation within the United States, the world’s largest economy.
Following a string of inflation data surpassing forecasts, investors revised their expectations for an interest rate reduction, now deeming September as a more plausible timeline for the commencement of an easing cycle. Amidst such financial volatility, Yeap suggests that oil’s bullish trajectory may continue, particularly given the precarious geopolitical landscape within the Middle East.
Casting a shadow over regional stability, concerns mount over potential Iranian retaliation in response to a recently suspected Israeli airstrike targeting Iran’s embassy in Syria. A Bloomberg report disclosed that the United States and its allies are bracing for the possibility of significant missile or drone attacks by Iran or its proxy forces against Israeli interests. U.S. Secretary of State Antony Blinken has reaffirmed America’s support to Israeli Defense Minister Yoav Gallant amidst these threats, as communicated by the U.S. State Department.
ANZ analyst Daniel Hynes emphasizes the market’s growing apprehension, stating, “The market has become increasingly concerned that the Israel-Hamas war could escalate across the Middle East, putting oil supply at risk.” Observers and traders within the oil industry are also poised for upcoming reports, with the Organization of the Petroleum Exporting Countries (OPEC) set to release their monthly oil market report on Thursday, followed by the International Energy Agency’s oil market report on Friday.
The global oil markets thus remain keenly focused on the unfolding events in the Middle East, a region central to the world’s oil supply, with potential impacts reverberating across international economic landscapes.
