Crude oil prices rebounded on Wednesday, breaking a two-day losing streak that continued into Thursday’s Asian midmorning trade. The recovery is driven by increasing concerns about geopolitical instability in the Middle East.
Earlier this week, Brent crude had fallen below $80 per barrel, but it has since climbed back above this threshold, with West Texas Intermediate (WTI) surpassing $77 per barrel. As of the latest update, Brent crude is hovering around $80 per barrel.
This price recovery is noteworthy given the prevailing bearish factors in the market. On Tuesday, the U.S. Energy Information Administration (EIA) reported an unexpected increase in crude oil inventories for the week ending August 9. However, the agency also noted a decline in fuel inventories, indicating robust demand.
Meanwhile, China reported lower refinery output, reduced apparent oil demand, and decreased crude imports for July. These indicators suggest that the world’s largest oil importer may not be consuming as much oil as before.
“The data doesn’t look great,” said Warren Patterson, head of commodities strategy at ING, as quoted by Bloomberg. “It only reinforces the demand concerns that have been lingering in the market for a while, and with China expected to account for nearly 60% of global demand growth this year, these worries are unlikely to fade anytime soon.”
Despite these concerns, oil prices have found support from renewed expectations of a possible interest rate cut in the United States before the end of the year. This optimism followed the release of consumer inflation data, which showed only a modest increase in prices for July.
However, the most significant factor influencing oil prices remains the geopolitical situation in the Middle East. Tensions escalated last week after Iran vowed retaliation against Israel for the assassination of a Hamas leader in Tehran. Although Iran has yet to act on its threat, the uncertainty has kept markets on edge.
“Geopolitical risk continues to loom over the oil market. It is still unclear how or if Iran will retaliate against Israel following the assassination of the Hamas political leader on Iranian soil. This uncertainty has led to increased options trading activity, with market participants seeking protection against significant price surges,” noted Patterson and Ewa Manthey of ING in a report earlier today.