KEY POINTS
- Oil prices edged lower after reaching their highest levels in over a month, fueled by fears of supply disruptions from the Middle East conflict.
- Brent crude and West Texas Intermediate (WTI) fell slightly, but remain elevated due to ongoing geopolitical risks.
- Investors are closely monitoring developments in the Middle East, with uncertainty surrounding potential impacts on global oil supply.
Crude futures declined on Monday after rising to the highest level in more than a month due to increasing tensions in the Middle East. Brent crude futures declined 0.3% to $87.88 a barrel and WTI fell to $86.04 a barrel, after having risen in recent days due to concerns of supply disruption in the oil-rich area.
The rally was first triggered by apprehensions that the conflict between Israel and Palestinian militants could spread to other parts of the Middle East, which produces about one-third of the world’s oil. Traders remain wary while the conditions persist and as any new change in the supply channels or the instabilities emerge.
Geopolitical risks remain to sustain oil prices the geopolitical risks remain to sustain the oil prices because the oil prices are determined by the geopolitical factors.
Of the two, oil prices have pulled back only slightly given the huge event risk associated with the conflict and its probable spillovers. Most of the leading oil producing countries of the global chart are located in the Middle East: Saudi Arabia and Iraq, these events directly distort the flow of oil, especially through the Hormuz straits – choke points of oil supply.
Reuters says that even as the conflict has not yet affected oil production, the rising fear of its escalation and drag in the rest of the region has brought about volatility. Why did oil traders react nervously to the threat of measures that might decrease the supply of crude oil in the global market?
Global supply outlook and market reaction
Besides geopolitical factors, the market sentiment is also being influenced by the global supply scenario. New production cut by the OPEC member i.e. Saudi Arabia and Russia have already decline the supply and helping for the upward factors in last few months. But observers have pointed out that the production from other non-OPEC countries such as the US may rise to counter balance any disruption from the Middle East.
The war risk has become persistent and investors have sought to mitigate supply risks, and many believe that oil prices could increase more in the event of an escalation of the conflict. At the same time, demand is still global, and fears of economic slowdowns in such giants as China and Europe can negatively affect the market’s optimistic outlook.
Oil markets remain shrouded in the unknown
Concerning the future prospects of the oil markets, researchers predict the continuation of their short-term fluctuations in connection with the armed conflict in the Middle East. Businesspeople will be keen to look for any signs of a broader war or steps that may jeopardize the stability of the oil industry in the area.
An indication to the risk factors in the future weeks that may cause prices to increase include sanctions or military engagement by other nations.
For now, the market is taking short-term geopolitical risks along with longer-term supply and demand factors that make oil prices unpredictable. The outcome, or otherwise, of the Middle East conflict will probably be the key to the future trend of oil prices.
