Oil prices edged slightly lower in early Asian trading on Friday, but the market is still poised to achieve a weekly gain of over 3%, driven by escalating Middle East tensions and positive economic indicators from the United States.
Geopolitical Tensions Drive Market Uncertainty
Brent crude futures dipped by 9 cents, or 0.11%, to $79.07 a barrel, while U.S. West Texas Intermediate (WTI) crude futures slipped by a cent to $76.09 per barrel. Despite these minor decreases, both benchmarks are set for significant weekly gains, largely due to heightened geopolitical risks.
The situation in the Middle East continues to deteriorate, with Israeli forces intensifying airstrikes across the Gaza Strip, resulting in at least 40 fatalities, according to Palestinian medics. This surge in violence raises the specter of a broader conflict, particularly given the recent killing of senior members of militant groups Hamas and Hezbollah. The possibility of retaliatory actions by Iran, a key player in the region’s oil market, has stoked fears about potential disruptions to oil supply.
Further exacerbating concerns, Iran-aligned Houthi militants in Yemen have escalated attacks on international shipping, signaling their solidarity with Palestinians in the ongoing conflict. The United Kingdom Maritime Trade Operations (UKMTO) reported an incident near the Yemeni port city of Mokha, adding to the volatility in the region.
Supply Disruptions and Economic Data Provide Support
In addition to geopolitical tensions, supply issues are also influencing oil prices. Libya’s National Oil Corporation declared force majeure at its Sharara oilfield earlier this week, citing ongoing protests that have forced a gradual reduction in production. This development has added another layer of uncertainty to the global oil supply chain.
On the economic front, U.S. labor market data provided a boost to market sentiment. The latest figures showed a larger-than-expected drop in new applications for unemployment benefits, easing concerns about a potential recession and supporting demand for crude. However, the strengthening U.S. dollar, bolstered by the robust jobs data, has somewhat offset these gains, as a stronger dollar typically makes oil more expensive for buyers using other currencies.
Market Outlook Amid Rising Risks
As the week draws to a close, oil markets remain on edge, with traders closely monitoring developments in the Middle East and the potential for further supply disruptions. The combination of geopolitical risks and positive economic indicators in the U.S. suggests that oil prices could remain elevated in the near term, though the situation remains fluid.
The oil market’s reaction to these developments underscores the delicate balance between supply and demand, with geopolitical events playing a significant role in shaping short-term price movements. As tensions continue to escalate, the market is likely to see increased volatility, making it essential for stakeholders to stay informed and prepared for potential shifts.
Source: Reuters
