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Geopolitical tensions propel oil prices

Geopolitical tensions propel oil prices

Oil prices continued their upward trajectory on Tuesday, buoyed by anticipation surrounding the outcome of the diplomatic efforts led by Antony Blinken, a prominent U.S. diplomat, in the Middle East. These efforts are aimed at bringing an end to the ongoing Gaza war and alleviating tensions in a region critical to global oil production and supply.

Brent crude futures experienced a gain of 42 cents, reaching a notable $78.41 per barrel by 1421 GMT, while U.S. West Texas Intermediate crude futures saw a similar increase of 46 cents, climbing to $73.4. These price movements marked a significant uptick of nearly 1%, marking a departure from the downward trend observed in the previous four trading sessions.

Priyanka Sachdeva, a seasoned senior market analyst at Phillip Nova, highlighted the absence of tangible signs indicating a de-escalation in the crisis gripping the Middle East. Despite this, the prevailing uncertainty continues to lend some support to oil prices, albeit amidst a backdrop of volatility and speculation within the market.

Blinken's diplomatic agenda included high-level meetings with key stakeholders in the region, such as Saudi Arabia's de-facto ruler on Monday, followed by discussions with Egyptian President Abdel Fatah al-Sisi upon his arrival in Cairo on Tuesday.

The Palestinian populace eagerly anticipates positive outcomes from Blinken's visit, with hopes pinned on the prospect of a ceasefire, particularly in light of looming threats of Israeli military action in Rafah, a border city where a significant portion of the Gaza Strip's population seeks refuge.

Despite mediation efforts by Qatar and Egypt, Hamas, the militant group controlling Gaza, has yet to provide a response to the ceasefire offer presented last week. The group remains hesitant, seeking additional assurances and guarantees that any ceasefire agreement would effectively bring an end to the protracted four-month conflict.

In parallel with diplomatic efforts, the United States continues to engage in military operations targeting the Iran-backed Houthi rebels in Yemen. These rebels have launched attacks on shipping vessels, disrupting crucial global oil trading routes, and have justified their actions as acts of solidarity with the Palestinians. Furthermore, they have issued warnings of further escalations should Israeli attacks on Gaza persist unabated.

Analysts Thu Lan Nguyen and Carsten Fritsch from Commerzbank offered insights suggesting that recent U.S. military strikes against the Houthis in Yemen do not signify a reduction in tensions within the region. The persistence of such geopolitical tensions adds an additional layer of complexity to the already volatile oil market landscape.

However, concerns regarding weakening demand expectations have somewhat tempered the upward momentum in oil prices. Analysts have pointed to expectations of sustained higher interest rates in the United States and other regions, as well as uncertainties surrounding China's economic outlook, as potential dampeners on oil consumption growth in the near term.

Leon Li, an analyst at CMC Markets, echoed sentiments of caution, expressing doubts about a swift return to previous price highs. He highlighted ongoing layoffs and their potential long-term implications for oil demand, emphasizing the need for a nuanced understanding of the complex interplay between economic factors and energy markets.

On the supply side, market participants are eagerly awaiting the release of U.S. crude stockpiles data scheduled for later on Tuesday. According to a Reuters poll of five analysts, the consensus estimate suggests that crude inventories likely witnessed an increase of approximately 2.1 million barrels in the week ending Feb. 2, a factor that could further influence market sentiment and price dynamics moving forward.

oil analysis, forex trading
XTI/USD daily chart, MetaTrader, 06.02.2024



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