Oil prices are recording a notable rise, supported by a series of geopolitical and economic factors. At the start of the week, growing tensions in the Middle East, particularly between Israel and Hezbollah, are contributing to this dynamic. Additionally, prospects for more robust energy demand from China play a key role in this development.
Tensions in the Middle East
Recent escalations between Israel and Hezbollah have reignited fears of disruptions in oil supplies. Israel has stepped up its strikes on the Gaza Strip in response to rocket attacks, raising concerns that the conflict could spread to the wider Lebanon region. This tense geopolitical situation directly influences oil prices, with markets anticipating potential disruptions.
Manufacturing activity in China, the world’s largest oil importer, grew at its strongest pace in three years in June. An independent manufacturing PMI showed the impressive performance, suggesting a strong economic recovery from disruptions caused by the COVID-19 pandemic. The growth reinforces expectations of higher oil demand, putting upward pressure on prices.
Effects of Natural Disasters
Hurricane Beryl, a Category 4 hurricane, also threatens to worsen the situation. Although forecasters believe it will spare major oil and gas operations in the Gulf of Mexico, the prospect of an active hurricane season reminds markets of the vulnerability of energy infrastructure to natural disasters.
Furthermore, the euro experienced a significant rebound against the US dollar after the first round of the legislative elections in France. The results suggest a decreasing chance that the National Rally will obtain an absolute majority, which is seen as a relatively less risky scenario by financial markets. This rise in the euro leads to a fall in the dollar, which, by mechanical effect, supports oil prices denominated in dollars.
Market reactions
PVM Energy analysts point out that the weakness of the dollar favors oil purchases, since transactions are mainly made in American currency. This dynamic is an additional factor in the recent rise in the price of a barrel of Brent and West Texas Intermediate (WTI).
In conclusion, the combination of geopolitical tensions, favorable economic prospects in China and climatic factors contribute to maintaining upward pressure on oil prices. Markets respond to these various influences by adjusting demand forecasts and anticipating possible supply disruptions.
The current situation offers a clear illustration of the multiple factors that can influence oil markets, highlighting the complexity and interconnectedness of global geopolitical and economic events. Vigilance remains essential for players in the sector, faced with a constantly evolving environment.
