In a continuation of last week’s upward trend, oil prices rose for the fifth consecutive session on Monday, buoyed by easing U.S. recession concerns and ongoing geopolitical tensions in the Middle East. This sustained rally underscores the complex interplay of economic indicators and global events shaping the energy market.
As of 1134 GMT, Brent crude futures climbed by 70 cents, or 0.9%, to USD 80.36 a barrel, while U.S. West Texas Intermediate (WTI) crude futures increased by 84 cents, or 1.1%, reaching USD 77.68. These gains build upon last week’s impressive performance, where Brent and WTI saw increases of 3.7% and 4.5%, respectively.
IG markets analyst Tony Sycamore attributes this positive momentum to recent encouraging U.S. economic data, which has alleviated fears of an impending recession. “Support is coming from last week’s better than expected U.S. data, which eased fears of a U.S. recession,” Sycamore noted.
However, geopolitical tensions continue to play a significant role in market dynamics. The assassination of key Hamas and Hezbollah leaders has heightened anxieties about potential retaliation from Iran and its allies. Sycamore emphasised the market’s apprehension, stating, “There is also a great deal of anxiety about when Iran might look to avenge Israel’s assassination of key Hamas and Hezbollah leaders. Feels like a matter of when, not if.”
Warren Patterson, ING’s head of commodities research, echoed this sentiment, observing that “The market is still waiting for Iran’s response.” The situation in Gaza further intensified over the weekend, with reports of an Israeli airstrike on a school compound resulting in significant casualties, although Israel disputes the reported death toll. These developments have cast doubt on Hamas’s participation in new ceasefire talks.
Adding to the geopolitical complexity, Russia has begun evacuating civilians from parts of a second region bordering Ukraine, following increased military activity near the border. This move comes in the wake of Ukraine’s most significant incursion into sovereign Russian territory since the war’s onset in 2022.
On the economic front, three U.S. Federal Reserve officials suggested last week that inflation appears to be cooling sufficiently to warrant potential interest rate cuts as early as next month. This outlook, coupled with China’s faster-than-expected rise in consumer prices in July and better-than-anticipated U.S. weekly jobless claims, has contributed to the positive market sentiment.
However, it’s not all bullish news for oil prices. The Organization of the Petroleum Exporting Countries (OPEC) has revised downward its forecast for global oil demand growth in 2024. This adjustment is based on weaker-than-anticipated data for the first half of the year and softer expectations for China’s economic performance. OPEC has also trimmed its projections for next year, indicating potential headwinds for sustained price growth.