The volatile dance of oil prices continued Monday, as the commodity saw an upward surge in response to a combination of geopolitical unrest and strategic market moves by Saudi Arabia. Brent crude futures, the benchmark for international oil prices, rose by 51 cents to $83.47 a barrel, indicating a 0.6 percent increase. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures also experienced a boost of 53 cents, settling at $78.64 a barrel, up by 0.7 percent.
The uptick reverses some of the sharp losses witnessed last week, where Brent crude tumbled over 7 percent and WTI crumbled by 6.8 percent. Market sentiment last week was heavily influenced by disappointing U.S. job figures and speculation concerning the Federal Reserve’s interest rate adjustments. Additionally, the initial ease in oil priced geopolitical risk premium might have factored in as ceasefire talks in the Gaza region unfolded.
However, the fragile Middle Eastern landscape continues to cast a shadow over the oil markets. Over the weekend, the possibility of establishing a ceasefire in Gaza dimmed. Hamas, the Palestinian militant group, has maintained its stance demanding an end to the hostile engagement in return for releasing hostages. Meanwhile, Israeli Prime Minister Benjamin Netanyahu has unwaveringly dismissed such conditions. The tension heightened as Israel urged Palestinian civilians in Rafah to evacuate, a move that suggests a potential expansion of military operations.
IG markets analyst Tony Sycamore cautioned, “News that Israel wants to go ahead and extend its operation into Rafah risks derailing a potential ceasefire agreement and reigniting Middle Eastern geopolitical tensions which had appeared to be easing.” He further projected that, with many long positions in oil having been cleared last week, the early part of this week could see WTI prices bounce towards the $80 mark.
Another bullish factor for prices is Saudi Arabia’s recent price maneuvering. The kingdom, which is also the world’s largest oil exporter, raised its official selling prices (OSPs) for June crude deliveries to Asia, Northwest Europe, and the Mediterranean. This move reflects an anticipation of a robust demand over the summer and a potential tightening of global oil supplies.
Reflecting on this dynamic, Warren Patterson, the head of commodities research at ING, observed “After falling a little more than 7.3 percent last week due to easing geopolitical tensions, ICE Brent has started the new trading week on a stronger footing, opening higher.” He ties this rebound to Saudi Arabia’s adjusted June OSPs amidst a constricting oil supply this quarter.
Additional optimism stems from China, the largest crude importer globally, where recent data reveals continued expansion in the services sector for the 16th consecutive month. This growth, alongside spiking new orders and heightened business enthusiasm, bolsters prospects of a steady economic resurgence.
From the supply-side perspective, the United States has seen oil and natural gas rigs reduce for a second consecutive week. Specifically, oil rigs saw the most significant weekly reduction since November 2023, plummeting by seven to a total of 499, as reported by Baker Hughes on Friday. This drawdown in rig operations might signal an impending constriction in oil production.
As the week progresses, the focus will remain riveted on the Middle East, with any escalation of conflict likely provoking further fluctuations in the oil markets. Alternatively, signs of diplomatic progress and resolution could release some of the pressure currently inflating oil prices. Despite the delicate balance of global events influencing the oil markets, traders and analysts will continue to scrutinize each development, hoping to navigate the tide of unpredictability that defines the world of crude oil trading.
