Oil Prices Dip on Mideast Ceasefire Talks, Hurricane Beryl Update

Oil prices fall on progress in Mideast ceasefire talks, but strong summer demand

by Victor Adetimilehin

Oil prices fell on Friday, July 5th, 2024, as progress in ceasefire talks between Israel and Gaza overshadowed concerns about potential supply disruptions from strong summer demand and Hurricane Beryl.

Ceasefire Progress Dampens Oil Prices

Brent crude futures settled down 89 cents, or 1.02%, to $86.54 a barrel, after reaching their highest level since April earlier in the day. U.S. West Texas Intermediate (WTI) crude futures settled at $83.16 a barrel, down 72 cents, or 0.9%. This decline comes after the head of Israel’s Mossad returned from Doha on Friday following an initial meeting with mediators trying to reach a ceasefire and hostage release deal with Gaza. Negotiations are expected to resume next week, with Prime Minister Benjamin Netanyahu’s office acknowledging that gaps still exist between the sides.

“Obviously a breakthrough there would help calm the waters,” said John Kilduff, partner at Again Capital. “An easing of the Middle Eastern conflict reduces the risk premium of barrels out of the region and weighs on oil prices.”

Summer Demand and Hurricane Beryl’s Impact

While the potential for a ceasefire dampened prices, oil prices have still risen this week on expectations of strong summer demand in the United States. The U.S. Energy Information Administration (EIA) reported a larger-than-expected draw in crude oil inventories last week, further supporting prices. This strong demand is expected to peak during the current drive season, putting upward pressure on prices.

However, the path of Hurricane Beryl is introducing uncertainty into the market. The Category 2 storm made landfall in Mexico on Friday after causing damage in several Caribbean islands. While Mexico’s major oil platforms are not expected to be affected, oil projects in U.S. waters could be disrupted if the hurricane continues on its projected path.

Interest Rate Cuts and the Oil Market

The possibility of U.S. interest rate cuts in July is another factor impacting the oil market. Recent job growth data showed signs of a softening labor market, with a rise in the unemployment rate and moderation in wage gains. This could prompt the Federal Reserve to cut rates to stimulate economic activity, which would in turn boost oil demand.

“This morning’s employment data shows that there are some cracks in the labor market, that could spur on a rate cut even this month,” said Kilduff. Lower interest rates can increase economic activity and lead to higher crude oil demand.

The oil market is currently caught in a tug-of-war between these competing factors. Progress in the ceasefire talks is putting downward pressure on prices, while strong summer demand and the potential impact of Hurricane Beryl are pushing prices up. Additionally, the possibility of U.S. interest rate cuts is adding another layer of complexity to the market outlook. In the coming days, investors will be closely watching developments on the diplomatic front in the Middle East, the path of Hurricane Beryl, and any announcements from the Federal Reserve regarding interest rates. These factors will likely determine the direction of oil prices in the near term.

Source: Reuters

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