Oil markets are bracing for a second consecutive week of declines in oil prices, with the global benchmark Brent crude hovering near $87 a barrel. The recent price fluctuations can be attributed to a combination of factors, including the ongoing Israel-Hamas conflict, concerns about potential disruptions to the oil supply, and emerging demand uncertainties.
On Thursday, Brent crude experienced a notable 2.6% surge, driven by a weakening U.S. dollar and signals from the Federal Reserve indicating a potential end to tightening monetary policies. However, the situation in the Middle East continues to cast a shadow over the energy markets.
The Israel-Hamas conflict has captured the attention of both investors and geopolitical analysts. The Israel Defense Forces’ (IDF) encirclement of Gaza City and a call for a ceasefire by the U.S. President have been key developments. Nevertheless, tensions persist in the region as Iran-backed Houthi rebels launch rockets and drones at Israel, and Saudi Arabia confronts this militant group.
Vivek Dhar, an analyst at the Commonwealth Bank of Australia, pointed out that the commencement of Israel’s ground invasion of Gaza without expanding the Israel-Hamas war has provided a glimmer of hope that major disruptions to oil supply and trade can be averted. However, he cautioned that any direct involvement of Iran in the Israel-Hamas conflict could rapidly push Brent oil futures to a staggering $100 per barrel.
Despite the looming risks to oil supply from the Middle East, the so-called “war premium” that oil prices had previously carried is gradually diminishing. Market participants are now turning their focus to concerns related to global demand.
Demand-related apprehensions have intensified in recent days as factory activity in China exhibited signs of slowing down. Simultaneously, the United States reported an increase in crude oil stockpiles, fueling worries about a potential surplus in the market.
As the Israel-Hamas conflict unfolds, investors find themselves on edge, eagerly awaiting the next developments. They remain vigilant for any signs of demand resurgence while keeping a close eye on the situation in the Middle East, which continues to be a volatile and unpredictable element in the global oil market.
In summary, the oil market is experiencing turbulence as geopolitical tensions persist in the Middle East, primarily due to the Israel-Hamas conflict. The sustained declines in oil prices underscore the intricate interplay of geopolitical factors and market forces in the global energy landscape.
The next week promises to be a critical period for the energy sector, as global observers anxiously await further developments in the region and their potential impact on oil prices.
Source: Bloomberg
