Oil prices dip as geopolitical risks abate

Oil prices dipped on Monday and WTI price dropped from $70.4 to $68.2 per barrel. If oil prices retreat, they may encounter support near $66.9 per barrel, while resistance may be found near $73.0 per barrel.

Oil prices exhibited high volatility after the announcement of the US election result last week, but steadied towards the end of the week, as markets had time to digest the US election outcome. According to a report by Bloomberg, President-elect Donald Trump is putting pressure on his Russian counterpart for a solution to the crisis in Ukraine. Reports that Trump has urged Russian President Vladimir Putin to deescalate tensions in Ukraine put pressure on oil prices on Monday.

The ongoing crisis in the Middle East threatens to disrupt oil distribution. Concerns of a broadening conflict in the Middle East are boosting oil prices. The conflict between Israel and Hamas continues to escalate, threatening to affect oil supply and distribution. The conflict in the Middle East, however, has been raging for over a year without significantly affecting oil supply and markets are starting to ignore this risk, putting pressure on oil prices.

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.50% to 4.75%. The Fed had already launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. 

Fed Chair Jerome Powell has stated that disinflation progress is steady, and the labor market is strong, permitting a shift towards a more neutral monetary policy. The odds of another rate cut in December are currently approximately 65%.

The Organization of Petroleum Exporting Countries (OPEC) announced earlier this month that it would extend its output cuts of 2.2 million barrels per day into December. The organization had already delayed output rises in October due to low demand and weakening oil prices.

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Written by:
Myrsini Giannouli

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