Oil Rebounds as Middle East Tensions Outweigh Rate Cut Concerns
Oil staged a 2% rebound on Friday, poised for a modest weekly uptick, buoyed by escalating tensions in the Middle East that heightened concerns over potential disruptions in supply. This surge offset the bearish sentiment stemming from reduced expectations for U.S. interest rate cuts this year.
Brent crude futures climbed $2.19, or 2.44%, reaching $91.93 per barrel by 1340 GMT, while U.S. West Texas Intermediate crude futures saw a $2.42 increase, or 2.85%, reaching $87.44.
Both contracts were on track for marginal week-on-week gains, having closed the previous Friday at $91.17 and $86.91 a barrel, respectively.
The recent attack on Iran’s embassy in Damascus, allegedly by Israeli warplanes, stirred concerns of retaliatory actions from Iran, keeping oil prices near a six-month high despite factors like increasing U.S. inventories.
Ole Hansen from Saxo Bank noted, “The risk of a geopolitical event occurring during the weekend is once again lifting the risk premium ahead of the weekend only to drop again on Monday.”
While a U.S. official expects potential retaliation from Iran against Israel, it’s unlikely to escalate into a full-blown conflict, according to sources from Iran. ING analysts anticipate a retreat in oil prices unless there’s a further escalation in the Middle East or supply disruptions.
They maintained their forecast of Brent averaging $87 a barrel over the second quarter of the year.
Although the International Energy Agency trimmed its forecast for 2024 world oil demand growth to 1.2 million barrels per day, OPEC’s more optimistic outlook, projecting growth 1 million bpd higher, provided support to prices.
Hansen of Saxo Bank highlighted, “For now, the market is mostly in the OPEC 2.2 million bpd demand growth camp as opposed to the IEA’s reduced 1.2 million bpd forecast.”
Friday’s gains reversed losses from the previous session, which were influenced by persistent U.S. inflation, dimming hopes for an interest rate cut as early as June. Higher interest rates typically dampen economic growth and reduce oil demand by increasing the cost of goods and services
