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Oil prices rise after escalation of tensions in the Middle East

2024-08-27 10:40:25Biznes SHKRUAR NGA REDAKSIA VOX

Oil prices rise after escalation of tensions in the Middle East

Crude oil prices were higher in the early Asian session amid escalating conflict in the Middle East over the weekend. Both benchmark oil prices hit one-week highs, with Brent futures up 0.66% to $79.54 a barrel and WTI futures up 0.68% to $75. $.34 per barrel at 7am CEST.

On Sunday, Israel said it carried out pre-emptive strikes on southern Lebanon to thwart an attack by the Lebanese Islamist group Hezbollah. Hezbollah said it still managed to launch hundreds of rockets and drones aimed at Israel, in retaliation for the killing of its top leader in July.

The military confrontation has raised concerns about a wider conflict in the Middle East, especially given the ongoing tensions between Iran and Israel. Consequently, fears of oil supply disruptions have boosted oil markets, as the conflict could lead to additional Western sanctions on Iran.

 

According to Reuters, no agreement was reached during ceasefire talks in Gaza on Sunday. At the meeting held in Cairo, neither Hamas nor Israel agreed to the proposed compromises. The talks, backed by the US, were aimed at ending the 10-month conflict between Hamas and Israel sparked by the October 7 attack last year. Sunday's attacks exemplify the failure of ceasefire negotiations and are likely to lead to wider regional conflicts.

Oil prices are expected to continue rising in response to escalating tensions in the Middle East. The US dollar weakened sharply against other major currencies in the G-10 group after the Jackson Hole symposium on Friday. Federal Reserve Chairman Jerome Powell indicated a possible rate cut in September, which was perceived as a fundamental change in monetary policy.

The dollar is expected to continue its downward trend due to this policy change, potentially supporting a further rise in oil prices. Other central banks, including the European Central Bank and the Bank of England, have also hinted at further rate cuts for the remainder of the year.

Easing monetary policies can stimulate economic growth in these major economies, thereby optimizing the outlook for global demand. Oil markets rose more than 4% in the first week of August amid rising demand and escalating tensions following Iran's promise of military retaliation following the killing of a Hamas leader.

However, oil prices pulled back sharply in mid-August due to disappointing Chinese economic data and signs of easing tensions in the Middle East. However, the recent escalation of the weekend may cause oil markets to recover.

Data from the US Energy Information Administration (EIA) showed that oil inventories fell by 4.65 million barrels for the week ending August 16, compared with an expected draw of 2 million barrels. The decline in stocks resumed after a rally last week, after six consecutive weekly declines through August 2.

OPEC+ production cuts are expected to reduce global oil inventories over the next three quarters, potentially boosting oil prices, according to the EIA. In June, OPEC and its allies agreed to extend output cuts of 3.66 million bpd until the end of 2025, with additional voluntary cuts of 2.2 million bpd to continue until September this year.

The organization, which accounts for over 37% of the world's total oil supply, has cut production since 2022, resulting in a total cut of 5.86 million barrels per day, representing 5.7% of global demand.


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