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Middle East tensions propel Oil prices: Analysts predict continued rise

Middle East tensions propel Oil prices, analysis

Crude oil has experienced a notably prosperous week, with its value surging by over 5%. This impressive performance can be attributed to a variety of factors, the most pivotal of which appears to be the looming risk of heightened tensions in the Middle East. This escalation stems from Israel's refusal to accept a ceasefire proposal put forth by Hamas, a development reported by Reuters.

Will this upward trajectory continue for oil prices, and what do industry analysts foresee for the future?

On Friday, the price of Brent crude saw a modest increase of 0.53%, reaching $82.06 per barrel, while West Texas Intermediate (WTI) experienced a slightly higher uptick of 0.62%, reaching $76.69 per barrel.

While these percentage increases may seem relatively minor on their own, when viewed within the broader context, they represent the fifth consecutive session of gains. Notably, during Thursday's trading session, the price of oil surged by approximately 3%, marking a significant movement in the market.

This upward momentum was primarily driven by Israeli military actions in Rafah, a city located on the southern border. These actions came in response to Prime Minister Benjamin Netanyahu's rejection of a proposed ceasefire aimed at resolving the conflict in the Palestinian enclave.

Throughout the week, oil prices have consistently trended upward, with both Brent and WTI crude oil poised to record gains exceeding 5%. This trend underscores the considerable influence that geopolitical tensions can exert on commodity markets, particularly oil, which is highly sensitive to disruptions in the supply chain and regional conflicts.

Warren Patterson, an analyst at ING, suggests that the recent price movements may have been somewhat exaggerated when considering the underlying fundamentals of the oil market. Patterson anticipates a continuation of price consolidation around current levels, attributing this outlook to the existing equilibrium between supply and demand.

Despite the role that Middle East tensions have played in bolstering oil prices, there has not yet been a direct impact on oil production. Interestingly, there are shifts occurring in the dynamics of oil supply, particularly in non-OPEC countries such as Norway and Guyana. Even Russia has reported an increase in oil exports for the month of February.

Goldman Sachs has highlighted that market participants may be underestimating the imbalance between supply and demand, which in 2023 led to a record surge in commodity prices. Additionally, few investors are factoring in the potential for supply cuts by OPEC+ during the summer months.

As a result, industry analysts are forecasting that Brent crude oil prices will peak at $85 per barrel in June 2024. They expect the average price to hover around $81 in 2024 and $80 in 2025, marking a departure from the previous forecast of $92 per barrel.

oil prices analysis, forex trading
XTI/USD, daily chart, MetaTrader, 10.02.2024



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