Oil prices began the week on an upward trend due to increasing tensions in the Middle East, following missile exchanges between Israel and Hezbollah. However, this bullish sentiment was short-lived as prices later experienced a slight decline.
In the previous week, both Brent crude and West Texas Intermediate saw their largest price increases since April. This was reported by Bloomberg and was attributed to two main factors: the Federal Reserve’s decision to lower interest rates by 0.50%, and news that China is planning to introduce more economic stimulus measures. Since hitting a three-year low earlier this month, Brent crude has seen a 9% recovery.
Despite these gains, concerns among traders about the impact of Chinese stimulus on oil demand, as well as the anticipated rate cut by the Fed, have capped further price increases. Analysts at ING noted that refiners in Europe are also reducing their operational rates due to poor profit margins, which adds to the demand worries.
IG analyst Yeap Jun Rong told Reuters that the rise in geopolitical tensions between Israel and Hezbollah could potentially support oil prices due to the risk of a broader regional conflict. However, he also pointed out that the measured price gains might reflect some skepticism about the actual impact on oil supplies, given that the Middle East conflict has been ongoing without significant disruptions so far.
Vanda Insights’ Vandana Hari suggested to Bloomberg that oil might enter a period of consolidation, reflecting the gains from the previous week. The optimism from the Fed’s rate cut is currently supporting market sentiment. However, she warned that once the effects of the rate cut wear off and the market’s focus returns to the deteriorating demand picture, oil could face renewed downward pressure.
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