Home Business News Oil nears two month high amid the possibility of war in Lebanon

Crude oil continues its gains for the third day in a row and is up 0.6% and 0.4% across both major benchmarks, West Texas Intermediate (WTI) and Brent.

The continued gains in oil supported by the growing concerns of US administration officials about the possibility of the conflict in the Middle East igniting and getting out of control on several fronts, in conjunction with the absence of encouraging data from the US economy or China this week.

Politico reported, citing intelligence sources in the US, about the growing fears of that only few weeks separate us from the outbreak of conflict on the South Lebanon front in light of the military build-up and increasing preparations coinciding with the continuation of hostilities there. While estimates from the European side indicated that this conflict is only days away, according to Politico as well.

While the ignition of that front may ignite other fronts in the region more than before, whether in Iraq, Syria, or the Red Sea, it is not unlikely that Iran will enter directly into this conflict. In other words, the coming weeks may witness a large-scale regional war if these fears are correct, and this would constitute widespread disruption to many oil supply lines.

Russia may also express its willingness to provide support to its partners in the region, as it moves towards an unprecedented escalation towards the US after the latter allowed the targeting of the Russian interior with some advanced weapons.

The exacerbation of these fears comes with the stagnation of the negotiating track in Gaza, the completion of which is believed to save the situation on other fronts, and this is what the US administration knows and has also spoken about, which is also does not seem encouraged to enter directly into this conflict, according to the Wall Street Journal. The Israeli side is also very committed to continuing the war in Gaza for internal political motives, and this makes negotiation impossible in the current reality.

Aside from the Middle East, this week did not bring encouraging data for the oil markets from any of the major economies, as we witnessed a higher-than-expected buildup of US crude inventories and an unexpected contraction in pending home sales. These data would have been a boost for oil prices while enhancing the possibility of an interest rate cut, but the US dollar continued to rise against the major currencies.

While the Dollar Index is located at a major resistance area extending between the 106-107 levels, while failure to break above it may lead to a noticeable correction, and this would support the continuation of oil’s gains as well.

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