Crude oil prices (WTI) have registered a significant rise on Tuesday, at around $76.58 per barrel, after dropping to an eight-week low of $74.24.
Meanwhile, Brent crude futures have risen by $1.39, or 1.8%, to $80.02 per barrel.
In my opinion, this increase is largely attributed to escalating geopolitical tensions in the Middle East and Ukraine, which have raised concerns about the stability of global oil supplies.
From my perspective, the primary reason for the rise in oil prices is the recent escalation of tensions in the Middle East.
The assassination of Hamas leader Ismail Haniyeh in Iran has escalated the regional conflict, increasing the likelihood of disruptions in oil supplies.
Additionally, Israel announced the killing of a senior Hezbollah commander in an airstrike on Beirut yesterday, in response to a cross-border rocket attack on Israel on Saturday. It’s worth noting that these developments have occurred despite intense diplomatic efforts by U.S. and U.N. officials to prevent the conflict from escalating further, which could destabilize the entire Middle East region.
I cannot overlook the geopolitical conflicts in Europe that are further complicating the market landscape.
In addition to the tensions in the Middle East, Slovakia has threatened to halt diesel supplies to Ukraine if Kyiv does not resume the transportation of oil through the pipeline from Russia’s Lukoil to Central Europe. In my view, this conflict arose after Kyiv imposed sanctions blocking the transportation of oil through this pipeline, threatening to create a supply shortage in Budapest, which relies on Russia for 70% of its oil needs.
However, I believe that while oil prices have seen some support from geopolitical tensions, they remain under pressure due to concerns about weak demand, particularly from China. The economic slowdown in China, the world’s largest importer of crude oil, continues to weigh on oil prices. Recent economic data has shown that manufacturing activity in China contracted for the third consecutive month in July.
This slowdown raises concerns that oil demand in China may decline, limiting the potential for prices to rise to new levels.
In the United States, markets are closely watching the Federal Reserve’s decision on interest rates. The Fed is expected to keep rates unchanged, but there are growing expectations of a potential rate cut in September. I believe any potential rate cut could boost economic activity in the United States, supporting oil demand.
As the upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) is scheduled for Thursday, no major changes to the current production policy are expected. The group is set to begin easing some production cuts starting in October. However, I believe that any unexpected developments in the Middle East or changes in global economic policy could lead to sudden fluctuations in oil prices in the short and medium term.
The U.S. Energy Information Administration is also set to release its weekly report on crude oil inventory changes later today, with the market expecting a decrease of 1.60 million barrels for the week ending July 26, after a decline of 3.741 million barrels in the previous week. In my view, this inventory decline could provide additional support to prices if it exceeds expectations.
In conclusion, I see crude oil prices continuing to rise in the short term due to escalating geopolitical tensions in the Middle East and supply disruptions in Europe. However, concerns about weak global demand, particularly from China, will remain a persistent pressure on the market. Therefore, the situation in the oil market will remain dependent on geopolitical and economic developments in the coming days and weeks.
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