KEY POINTS
- Oil prices increased by 0.3 percent amid Middle East tensions and the U.S. rate cut.
- Fears of Iran being drawn into the Israel-Hezbollah conflict raise supply concerns.
- U.S. Federal Reserve’s half-point rate cut fuels demand outlook
Oil prices saw slight gains on Monday, as geopolitical tensions in the Middle East and the recent U.S. interest rate cut stoked supply concerns and boosted demand expectations.
Middle East conflict fuels supply concerns
Brent crude futures for November edged up by 0.3 percent to $74.69 a barrel at 0045 GMT, while U.S. crude futures for November also increased by 0.3 percent, reaching $71.22. The gains came amid fears that escalating conflict in the Middle East could disrupt oil production in the region, a critical supplier to global markets.
Tensions in the Middle East flared after Israel and Iranian-backed Hezbollah, based in Lebanon, exchanged heavy fire over the weekend. According to Reuters, the conflict has heightened fears that Iran, a major oil producer, could be dragged into the fighting, potentially disrupting supply routes.
US rate cut supports demand outlook
The market also found support in the U.S. Federal Reserve’s decision to cut interest rates by half a percentage point last Wednesday. The larger-than-expected rate reduction is anticipated to stimulate economic activity and fuel demand for energy.
ANZ analysts noted that investor sentiment was buoyed by hopes that the Fed’s move might lead to a soft landing for the U.S. economy. The weaker U.S. dollar, following the rate cut, further contributed to positive investor appetite in the oil market.
Additionally, the oil market was impacted by reduced U.S. supply following the disruption caused by Hurricane Francine. Oil prices had already climbed for a second consecutive week last week as a result of the storm’s aftermath.
The interplay of these factors rising geopolitical risks and the economic boost from the U.S. rate cut continues to shape market dynamics as traders weigh the potential for supply disruptions against a backdrop of uncertain demand growth.
