Geopolitical pressures push oil prices higher

Oil prices edged higher on Tuesday, with WTI price rising above the $85.8 per barrel level, its highest price since October 2023. If WTI price declines, it may encounter support near $80.7 per barrel, while resistance may be found near $86.7 per barrel.

Escalating geopolitical tensions are boosting oil prices. Tensions in the Middle East are rising after an airstrike on Iran’s embassy in Syria on Monday. Iran and Syria have accused Israel of the attack and Iran is threatening Israel with retaliation. Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. 

Ongoing Ukrainian attacks on Russian energy infrastructure are also propping up oil prices. Supply concerns are boosting oil prices on reports of the loss of Russian refinery capacity after recent Ukrainian attacks. 

OPEC+ is meeting on Wednesday and reports that the organization will maintain its existing output cuts raising supply concerns and boosting oil prices. OPEC has so far maintained voluntary production cuts of 2.2 million barrels per day, through the second quarter of 2024. Russia has announced additional cuts of 471K barrels per day as a result of lower refinery runs due to Ukrainian drone strikes. Iraq has also announced that it would reduce crude exports to 3.3 million barrels per day in the coming months to compensate for exceeding its OPEC+ quota since January.

China’s poor economic outlook is increasing concerns about reduced oil demand, putting a lid on oil prices, however, 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 high Fed interest rates. The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The Fed’s forward guidance was overall dovish, indicating that the Fed intends to proceed with cutting interest rates this year as planned, despite persistent inflationary pressures. 

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Written by:
Myrsini Giannouli

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