Oil records its lowest opening in ten days, with signs of calming the conflict in the Middle East

Oil recorded, across both crude oils, the lowest opening at the beginning of the new week of February 15th.

While oil continued its decline after the opening, reaching the levels of 75.87 and 81.03 dollars per barrel for West Texas Intermediate (WTI) crude oil and Brent, respectively, in the largest declines today.

The negative opening of the oil markets came with the return of hope for a calming of the raging conflict in the Middle East, with work on formulating a framework for a possible ceasefire, albeit temporarily, in light of the meeting of local and international actors in Paris on Saturday.

There are many reasons that push regional and international parties to move towards calming the conflict. The Democratic administration in the United States may not want the conflict to escalate and get out of control during the challenging electoral season, and the extension of the conflict period for a longer period will continue to impede the smooth flow of global trade through the Red Sea, which may harm Egypt and the European Union in particular.

Moreover, failure to contain this conflict soon may mean heading towards the other scenario, which is a large ground operation in Rafah in mid-next March, and this may take us towards a new chapter of this bloody conflict, and this is what the international community may not want, given the overwhelming consequences that it may result.

Aside from the conflict, it appears that pessimism still persists about the future of oil demand from the Chinese economy, with markets dissatisfied with the measures taken by the Chinese government in various aspects to support weak demand, including the unexpected cut in interest rates last week.

Next Friday, we await February’s reading of the manufacturing and services PMIs and expectations of more lackluster performance. Therefore, these reports must highlight a noticeable recovery in demand in order to satisfy the markets’ desire to see more signs of stopping the slowdown in economic growth in the country that is most in demand for oil in the world.

This week will also be full of data from the US economy as well, and unlike China, more positive than expected data may be unpleasant for oil markets.

More data that will indicate the possibility that inflation will remain high for a longer period than expected may constitute an obstacle to oil prices, as these figures may reduce the markets’ hope of the expected interest rate cut last May, after the hope of cutting rates in March was almost completely dashed.

The probability that the Federal Reserve will reduce interest rates by 25 basis points has decreased from 50% since the month to only about 18% today, and the probability is now only 2.5% for such a cut next March, according to CME’s FedWatch Tool.