Oil prices plummet despite rising tensions in Israel

Oil prices exhibited high volatility on Monday, with WTI price shooting up to 78.0 per barrel at Monday’s opening, then dropping below $76.5 per barrel later in the day. If oil prices retreat, they may encounter support near $72.5 per barrel, while resistance may be found near $83.8 per barrel.

Supply concerns provide support for oil prices on global geopolitical risks. The ongoing crisis in the Middle East threatens to disrupt oil distribution. Tensions in the area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. 

Oil prices spiked early on Monday after a rocket strike by Hezbollah in the Israeli-occupied Golan Heights over the weekend raised concerns of an all-out war in the region. Oil prices plummeted later on Monday, however, as markets had time to digest the news. 

Oil prices are kept in check by high central banks’ interest rates. The US Federal Reserve kept interest rates unchanged at its policy meeting in June, within a target range of 5.25% to 5.50%, as expected. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result. 

This week we expect increased volatility in oil prices as three major central banks are holding their monetary policy meetings. The Bank of Japan and the US Federal Reserve will announce their interest rate decisions on Wednesday, and the Bank of England on Thursday.

The Fed is expected to keep interest rates steady this week but will likely signal a rate cut in September. Increased rate cut expectations are propping up oil prices. Rate cut expectations in September are currently above 90%, boosting oil prices.

Concerns about decreasing oil demand in China, the world’s largest importer, are putting pressure on oil prices. Oil demand outlook in China has been decreasing after the release of disappointing Chinese economic data. 

OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. OPEC, however, announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025. 

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Written by:
Myrsini Giannouli

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