Crude oil prices (WTI) fluctuate within a narrow sideways trading range, hovering slightly above $71 per barrel.
Despite reaching a near three-week high, markets have not seen a significant breakthrough, which, in my opinion, is due to several factors surrounding the global energy market.
It appears that geopolitical tensions and concerns about a worldwide economic slowdown play a central role in determining price trends.
The Middle East has seen rising tensions, with continued Israeli airstrikes on Hezbollah positions in Lebanon. These developments not only have a direct impact on the ongoing conflict but also raise broader concerns about the region’s stability.
As a key oil-producing area, any escalation in conflict could disrupt supply, directly impacting global oil prices. In this context, I believe that continued tensions increase the likelihood of supply shocks, making the market more prone to sharp price swings.
Additionally, fears of potential disruptions to U.S. oil production due to expected tropical storms further add to the uncertainty, supporting short-term price increases. One could argue that a mix of geopolitical tensions and weather-related factors creates an unstable environment for oil markets.
Another contributing factor to rising oil prices is U.S. Purchasing Managers’ Index (PMI) data. The 0.50% rise in the U.S. index during the American trading session is a positive sign, reflecting improved economic activity and increased demand for essential commodities, including oil. On the other hand, Europe has seen a sharp decline in economic activity according to PMI data, which could signal reduced demand for oil in the region.
From my perspective, a clear divergence is emerging between major economies. The U.S. appears to be heading toward relative economic improvement, while Europe faces mounting challenges. This economic performance disparity directly affects global oil demand and could lead to conflicting price expectations in the coming period.
Another factor supporting higher oil prices is the notable drop in global crude oil stored on tankers. The volume of crude stored for at least seven days fell by 12%, down to 56.31 million barrels. In my view, this reflects increased demand for oil and reduced available supply in global markets.
In my opinion, this data reinforces short-term price rise expectations. The decrease in stored oil is an indicator that the market may face supply shortages, especially amid current geopolitical concerns.
However, I would highlight that the continuation of this trend will largely depend on developments in the Middle East and decisions that could be made by OPEC+ in the coming period.
These factors coincide with the U.S. dollar’s recent attempts to benefit from its rebound after the Federal Reserve’s interest rate cut. With expectations of further monetary easing, one could argue that a weaker U.S. dollar supports demand for dollar-denominated commodities like oil, thereby bolstering crude oil prices. Additionally, U.S. PMI data has proven more resilient compared to that of Europe and the U.K., further enhancing oil’s appeal in the American market.
However, I prefer a cautious outlook on the continuation of this upward trend. I believe that while current conditions may support higher oil prices, uncertain global economic forecasts, particularly regarding China, the world’s largest oil importer, could exert significant downward pressure on prices.
Ultimately, I remain relatively optimistic about short-term oil price increases, supported by geopolitical tensions and declining inventories. However, I caution that the upward trend could be limited by concerns over a global economic slowdown, especially in Europe and China. For this reason, traders should be cautious before taking long or medium-term positions on rising prices.
It is also crucial to closely monitor statements from the Federal Open Market Committee (FOMC) members and the U.S. Personal Consumption Expenditures (PCE) Price Index for clearer signals on monetary policy and its impact on the oil market. Oil prices could remain under increasing pressure from both geopolitical tensions and global economic concerns, making it challenging to predict their trajectory with certainty over the medium and long term.
