By Adedapo Adesanya
Crude oil prices gained nearly 2 per cent on Monday on hopes of rising demand during the Northern Hemisphere’s summer driving season and worries that conflict in the Middle East could spread and reduce global oil supplies.
Israel and Hezbollah, which is sponsored by Iran, have been engaging in intense fights since the commencement of the Gaza conflict. There is growing apprehension that an all-out war may occur between the two parties.
This pushed the price of Brent futures higher by $1.60 or 1.9 per cent to $86.60 per barrel as the US West Texas Intermediate (WTI) futures rose by $1.84 or 2.3 per cent to $83.38 per barrel.
Market analysts note that oil prices continue to acquire support from increasing geopolitical risk premiums related to Israel-Hezbollah tensions.
It appears that Hezbollah and Israel are inching closer to a full-scale conflict, which has the potential to involve Iran, a member of the Organisation of the Petroleum Exporting Countries and its Shiite allies in Iraq, Yemen, and Syria.
Meanwhile, OPEC, along with its allies, a group known as OPEC+, has already extended most of its oil output cuts into 2025.
Those output cuts have led analysts to forecast supply deficits in the third quarter as transportation and demand for air-conditioning during the summer eat into fuel stockpiles.
Hurricane Beryl, a major hurricane of extreme danger, was anticipated to pass through Jamaica on Wednesday and impact the Yucatan Peninsula in Mexico on Friday. It is expected to weaken into a tropical storm and enter the Bay of Campeche in the Gulf of Mexico, where Mexico produces a significant amount of its oil, on Saturday.
The market also received data showing US manufacturing contracted for a third straight month in June as demand remained subdued, while a drop in a measure of prices paid by factories for inputs to a six-month low suggested that inflation could continue to subside.
As the week goes on, investors will be looking for more signs of when the U.S. Federal Reserve will start cutting interest rates.
The market will first focus on remarks from US Federal Reserve’s Chairman Jerome Powell on Tuesday, followed by the release of minutes from the US central bank’s latest policy meeting on Wednesday and US nonfarm payrolls data on Friday.
Hopes of an interest rate cut by the US Federal Reserve and rising political concerns in Europe have also kept a floor under prices.
The Federal Reserve hiked interest rates aggressively in 2022 and 2023 to tame a surge in inflation. The higher rates boosted borrowing costs for consumers and businesses, which can slow economic growth and reduce oil demand.
Dipo Olowookere