Oil prices propped up by fears of wider conflict

Rising geopolitical tensions are propping up oil prices and WTI price remained close to $85.3 per barrel on Tuesday. If WTI price declines, it may encounter support near $82.8 per barrel, while resistance may be found near $87.8 per barrel.

Geopolitical tensions are boosting oil prices. 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. Tensions in the Middle East have been high after the recent airstrike on Iran’s embassy in Syria. Iran accused Israel of the attack and launched a retaliative drone strike on Israeli ground over the weekend. Israel has, in turn, threatened Iran with retaliation for the drone attack, and the Israeli war cabinet has met to discuss the terms of Israel’s response against Iran. The US has pledged to support Israel in the conflict, raising concerns of a wider regional conflict, which might see oil prices rising even higher.

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

OPEC+ kept existing output cuts in place at its latest meeting, boosting oil prices. OPEC kept its output policy steady in April, maintaining its voluntary production cuts of 2.2 million barrels per day. In addition, Russia may be forced to reduce its oil output even further, as a result of lower refinery runs due to Ukrainian drone strikes. Iraq will continue to reduce its crude exports by another 130K barrels per day to compensate for exceeding its OPEC+ quota in 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%. Market expectations of rate cuts dropped sharply after the release of the US inflation report last week. Odds of rate cuts are becoming more moderate as policymakers have stated that they intend to start reducing interest rates slowly.

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Written by:
Myrsini Giannouli

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