Oil prices surged above $75 on Monday following increased tensions between Israel and Hezbollah, which escalated into tit-for-tat attacks in the Gaza region. The violence could jeopardize ceasefire negotiations in Gaza. This surge in violence could not have come at a worse time, casting doubt on the possibility of a peaceful resolution and potentially spreading conflict to neighboring countries. The situation is further exacerbated by the uncertainty surrounding oil supplies, particularly in Libya, where recent local turmoil poses a risk of disruption.
The US Dollar Index, after a steep decline last week, rebounded to 101.00 as Federal Reserve Chairman Jerome Powell hinted at an upcoming interest-rate cut in September. The market, however, seems to be overly enthusiastic about the prospect of significant rate cuts before the year ends. To achieve a soft landing, the Fed would need to cut gradually and cautiously, rather than the quick cuts anticipated by the market.
At present, Crude Oil (WTI) is trading at $75.60, while Brent Crude is at $79.21. Hedge funds are closely monitoring the situation, with Citigroup warning of potential Libyan oil disruptions due to the escalating turmoil in the region. The widening spread in Crude prices between Brent and Dubai reflects this uncertainty. Additionally, Libya’s Waha Oil has announced gradual output cuts amid an export blockade. China’s Sinopec, the country’s largest Crude refiner, is facing challenges due to an economic slowdown, particularly affecting Diesel demand.
In technical analysis, Oil is showing signs of strength at the start of the week. Despite fears of a sell-off by hedge funds last week, prices rallied, suggesting potential further positioning. The recent violence over the weekend could impact the feasibility of a ceasefire deal between Israel and Hamas, potentially triggering a surge in Oil prices. Key levels to watch include $77.65 on the upside, where a breakout could lead to a rejection at the 100-day SMA at $78.45. On the downside, the $71.17 level has provided support, with $70.00 and $68.00 as immediate levels below.
WTI Oil, also known as West Texas Intermediate, is a high-quality Crude Oil sourced in the United States and distributed via the Cushing hub. It is considered a benchmark for the Oil market, with its price frequently quoted in the media. Like all assets, supply and demand dynamics drive WTI Oil prices, influenced by factors such as global growth, political instability, OPEC decisions, and the value of the US Dollar. The weekly inventory reports from API and EIA also impact prices, reflecting changes in supply and demand.
OPEC, a group of major Oil-producing countries, plays a significant role in determining WTI Oil prices through production quotas set at biannual meetings. Their decisions can impact supply and demand dynamics, affecting price levels. OPEC+, an expanded group that includes non-OPEC members like Russia, also has a say in global oil markets. Monitoring these factors is crucial for investors and traders to navigate the complex and volatile landscape of the Oil market, especially amid escalating geopolitical tensions and economic uncertainties.
