Fears of an extension of the war in the Middle East, following the Israeli aggression against Lebanon, have made oil traders “optimistic”.
Oil prices continued to rise yesterday, closing a third consecutive week of progression in a tense geopolitical context in the Middle East. Black gold prices were also supported by growing expectations that the US Federal Reserve would soon start cutting interest rates.
Brent crude futures for August settlement, expiring yesterday, were up over $87 a barrel intraday. The September Brent contract rose to over $86 per barrel. U.S. West Texas Intermediate crude futures for August delivery were trading significantly above $82 a barrel.
Brent and WTI futures gained nearly 2% this week, with both benchmarks yesterday on track for gains of just over 6% month-on-month. Fears of an extension of the war in the Middle East, following Israeli aggression against Lebanon, have made oil traders “optimistic”, say analysts cited by news agencies which focus on the geopolitical risk premium.
Growing expectations of an imminent round of Fed easing have further triggered a risk-on rally in stock markets. Traders now assess the probability of a first Fed reduction in September at 64%, compared to 50% a month ago, according to the CME FedWatch tool, cited by Reuters.
The News Agency believes that “the easing of interest rates could be a boon for oil, as it could increase consumer demand.”
Series of discounts
A recovery in physical refining margins also boosted markets, with “Singapore complex refining margins on average $1 higher in June than in May, at around $3.60 per barrel.”
A few weeks ago, oil markets initially reacted negatively to OPEC+’s decision to end voluntary production cuts later this year, with oil prices falling to their lowest level in several months, before gradually recovering over the course of the quotes.
The group agreed on June 2, 2024, to extend the latest reduction of 2.2 million b/d until the end of September and to gradually phase it out from October.
Sticking to its position and its optimistic view of the evolution of demand, the Organization of the Petroleum Exporting Countries (OPEC) maintained, in its monthly report for June, its forecasts for 2024 of relatively strong growth in global oil demand, citing expectations for travel and tourism in the second half of the year.
Forecasts which reinforced the upward curve of black gold. OPEC and its allies have implemented a series of production cuts since late 2022 to support the market.
