Oil prices rise as conflict in the Middle East intensifies

Crude oil prices opened this week with a gain after another week of losses as an increase in violence in the Middle East fueled concerns about supply, while in the US the Fed signaled that could start cutting interest rates next month.

Brent crude was trading above $79 in late morning trade in Asia today, with West Texas Intermediate above $75 a barrel.

A contributing factor to the latest moves in oil prices may also have been global supply, which fell to a two-year low, with OECD stocks notably well below the ten-year seasonal average at minus 120 million barrels or 4%. US oil stocks have been falling for several weeks in a row.

“Israel’s pre-emptive strike on Lebanon over the weekend to prevent an imminent attack by Hezbollah should ensure a stronger open this morning as crude oil (WTI) looks to extend its early rally to $77.50 ahead of $80.00,” IG analyst Tony Sycamore told Reuters.

However, “As risks in the Middle East develop following the latest escalation, the market is becoming increasingly immune to these tensions,” said Warren Patterson, head of commodity strategy at ING, quoted by Bloomberg. “It’s been going on for almost a year and it’s still not impacting the oil supply.”

“We would expect any rally on the back of these developments to be short-lived, unless Iran becomes more directly involved, as this would increase oil supply risks more significantly,” Patterson said in -a note.

In a further boost to prices this week, the chairman of the US Federal Reserve signaled last week that an interest rate cut was definitely on the table for the central bank’s next monetary policy meeting in September.

“The time has come for policy to adjust,” Powell said Friday at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on the data received, the evolution of the outlook and the balance of risks,” the Fed president also said, quoted by Reuters.

By Irina Slav for Oilprice.com

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