Oil prices surge on geopolitical concerns

Oil prices surged on Monday, with WTI price testing the $75.1 per barrel resistance before paring some gains later in the day. If WTI price declines, it may encounter support near $70 per barrel, while resistance may be found near $75.1 per barrel.

Oil demand outlook has increased, as the International Energy Agency (IEA) joined producer group OPEC in forecasting strong growth in global oil demand. The IEA monthly report stated that oil demand is expected to grow by 1.24M barrels per day in 2024, up by 180K barrels per day from its previous projection. OPEC has also reported a high oil demand forecast, expecting a growth in demand of 2.25M barrels per day this year.

Supply concerns also boost oil prices, as the crisis in the Gaza area threatens to disrupt oil distribution. Geopolitical tensions are rising in the Red Sea, spilling over the region from the war in Gaza. Tensions around the Red Sea area have been rising in the past few weeks, raising concerns that hostilities may spread in the Middle East, affecting oil supply and distribution. Iran-backed Houthi militants are attacking commercial vessels in the Red Sea. The US and the UK have launched a coordinated action against Houthi rebels in Yemen on Thursday night. 

China’s poor economic outlook is increasing concerns of reduced oil demand, putting a lid on oil prices, despite increasing geopolitical risks. Weak economic growth in China raises concerns about future demand, pushing oil prices down. 

Oil prices are also kept in check by a strong US dollar and high-interest rates. Most major central banks, however, are hitting pause on rate hikes, boosting oil prices. The Fed kept interest rates unchanged at its December meeting, within a target range of 5.25% to 5.50%. Market expectations of future rate cuts increase oil demand outlook, boosting oil prices. 

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Written by:
Myrsini Giannouli

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