The international markets saw a resurgence in oil prices this Friday, as ongoing hostilities in the Middle East prompted concerns over potential disruptions in the flow of oil from one of the world’s most prolific production zones. Despite the uptick, the trajectory for the week indicated losses, fueled by the anticipation of a reduced pace in U.S. interest rate reductions this year.
Brent crude futures saw an increase of 51 cents, or 0.57%, reaching $90.25 per barrel by the early trading hours of 0420 GMT. Concurrently, U.S. West Texas Intermediate (WTI) crude futures experienced a hike of 61 cents, or 0.72%, to settle at $85.63. This bump in prices served to somewhat counteract the depreciations witnessed in the previous session, driven by persistent inflation concerns in the U.S. that have tempered expectations for any imminent Federal Reserve rate cut, possibly as soon as June.
The price shifts were stirred by an event that has significantly heightened regional tensions: a suspected bombing of Iran’s embassy in Damascus by Israeli warplanes, prompting a stern vow of retribution from Iran. Although the Israeli government hasn’t explicitly accepted responsibility for the incident, Iran’s Supreme Leader, Ayatollah Ali Khamenei, made it clear with his statement on Wednesday that “Israel must be punished and it shall be,” signifying the possibility of impending actions.
Despite these developments, a U.S. official has hinted that while retaliation from Iran against Israel is anticipated, it is not expected to escalate to the extent that would draw the United States into a broader conflict. Sources out of Iran suggest that any countermeasures will be calibrated to avoid a major expansion of hostilities.
Yet, in the backdrop of the Gaza conflict, the tensions are palpable. Israeli Prime Minister Benjamin Netanyahu, addressing the situation on Thursday, acknowledged the ongoing operations in Gaza while also preparing for potential incidents in other areas, underlining the fluid and uncertain security dynamics in the region.
ANZ Research, in a note on the situation, underscored the gravity of these elevated geopolitical risks, noting that oil prices have surged almost 19%. This is attributed not only to the geopolitical uncertainties but also to the improving global economic conditions and the continued supply curtailment by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+.
Meanwhile, Europe presents its own economic narrative, with indicators pointing to a softening labor market and stagnant growth. In light of these, European central bankers, while holding policy rates steady on Thursday, indicated an openness to rate cuts as early as June.
The picture in the United States offers a differing perspective where the Federal Reserve officials, as of Thursday, appear to show no urgency towards interest rate reductions, largely due to persistent inflation which remains a primary economic concern.
Despite the momentary gains, both Brent and WTI were slated for a weekly decline exceeding 1% by the time Friday trading had commenced, as per the benchmark GMT time reference.
Looking ahead, analysts from ING project that the recent rally in oil prices could recede unless the Middle East witnesses further escalations or notable supply interruptions. They also reported that OPEC’s latest monthly market report aligns with existing forecasts, prompting ING to maintain their expectation for Brent to average around $87 per barrel throughout the second quarter of the current year.
As the global community tracks these events, the oil markets continue to respond to an intricate blend of economic cues and geopolitical developments, reflecting the complex and interconnected nature of international trade and diplomacy.
