Oil Prices Surge 3% on Positive Economic Data and Rate Cut Hopes Amid Rising Geopolitical Tensions
Oil prices closed higher on Friday, capping off a week of gains exceeding 3.5% driven by encouraging economic data and growing anticipation of interest rate cuts by the Federal Reserve as early as September. These developments have eased concerns over demand while ongoing conflicts in the Middle East continue to heighten supply risks.
Brent crude futures increased by 50 cents, settling at $79.66 per barrel, while U.S. West Texas Intermediate (WTI) crude futures rose by 65 cents to close at $76.84 per barrel. Both benchmarks saw substantial weekly gains, with Brent climbing more than 3.5% and WTI rising over 4%.
“Crude is in a recovery mode,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial, noting that calming recession fears and geopolitical tensions are positively impacting oil prices.
The boost in oil prices was partly fueled by statements from Federal Reserve policymakers, who expressed growing confidence that inflation is cooling, potentially paving the way for rate cuts. Additionally, a significant drop in U.S. jobless claims contributed to the market’s optimism, suggesting the labor market is stabilizing.
Supporting the rally, China’s consumer price index showed a faster-than-expected rise, reinforcing the positive momentum in the oil market. Pierre Veyret, Technical Analyst at ActivTrades, noted that the inflation numbers from China further bolstered oil prices, with the possibility of Brent crude testing the $80 per barrel mark soon.
Geopolitical tensions in the Middle East also played a significant role in driving up oil prices. Intensified airstrikes by Israeli forces in Gaza and the potential for retaliatory actions by Iran have raised concerns about disruptions in the region’s oil supply. Additionally, ongoing conflicts such as the Russia-Ukraine war and attacks on international shipping near Yemen by Iran-aligned Houthi militants have further exacerbated supply fears.
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The dollar index, which measures the U.S. currency against a basket of others, declined slightly, making oil more affordable for foreign buyers and further supporting prices. Meanwhile, Libya’s National Oil Corporation declared force majeure at its Sharara oilfield due to protests, adding to the supply concerns.
Despite these factors, U.S. oil rigs, an indicator of future production, increased by three this week, while money managers reduced their net long positions in U.S. crude futures and options, according to the U.S. Commodity Futures Trading Commission (CFTC).
The combination of positive economic signals, geopolitical risks, and potential rate cuts has set the stage for a volatile but upward-trending oil market in the coming weeks.
