Crude oil prices began the week with a slight increase, maintaining gains from the previous week. This rise follows an announcement by U.S. Defense Secretary Lloyd Austin that a guided missile submarine will be deployed to the Middle East.
The deployment is a response to rising tensions in the region, where Israel and its U.S. allies are preparing for potential retaliatory attacks from Iran and its allies. This comes after the killing of Hamas leader Ismail Haniyeh in Tehran and a senior Hezbollah figure in Lebanon.
According to a Pentagon statement, Austin reaffirmed the U.S.’s commitment to defending Israel and highlighted the increased U.S. military presence and capabilities in the Middle East amid growing regional tensions, as reported by Reuters.
Last week, Brent crude oil prices increased by 3.5%, while West Texas Intermediate saw a gain of over 4%, driven by concerns over a possible escalation in the Middle East. Both benchmarks continued to rise earlier today, with traders momentarily setting aside worries about the U.S. economy and Chinese oil demand.
Commonwealth Bank of Australia analyst Vivek Dhar told Bloomberg that the primary market concern is the potential impact on Iran’s oil supply and infrastructure. Dhar expects Brent oil futures to trade between $75 and $85 per barrel in the short term. However, he noted that prices could surge if the conflict in the Middle East intensifies.
Additionally, oil prices received support from U.S. Federal Reserve officials, who suggested last week that inflation might be declining enough to prompt an interest rate cut sooner than expected. This potential rate cut could ease one of the main bearish factors affecting oil prices this year.
Richmond Federal Reserve Bank President Thomas Barkin expressed optimism about inflation trends, stating, “All the elements of inflation seem to be settling down. I’m relatively hopeful based on the conversations I’m having that that’s going to continue,” as quoted by Reuters on Friday.