Crude oil prices rebounded on Friday after pulling back from the 6-week high hit at the beginning of the week. With geopolitical conflicts in the Middle East still a key driver of the oil market, ‘buy the rumour’ sentiments are shaping the price movement in the short term.
Goepolitical risk premium
Last week, crude oil prices were bolstered by concerns that the ongoing conflicts in the Middle East will escalate. In fact, in a period of one week, between 30th September and 7th October, Brent oil rallied by close to 15% to a six-week high. The surge follows Iran’s launching of close to 200 ballistic missiles on Israel. Granted, no fatalities were reported as most of the missiles were intercepted by US and Israeli defense forces. Subsequently, the Iranian government warned of an ‘unconventional response’ should Israel retaliate.Iran’s warning, coupled with fears that Israel may attack Iran’s energy infrastructure, have continued to support crude oil prices despite the easing of the risk premium. Indeed, the conflict remains a key element of the crude oil market’s fundamentals in the short term.Earlier in the week, ‘buy the rumour’ sentiments pushed prices lower as reports pointed to a probable ceasefire between Iran and Israel. However, the United States on Wednesday dismissed reports that it was collaborating with certain Arab countries in secret negotiations with Iran aimed at reaching a comprehensive ceasefire with Israel. During a press briefing, Matthew Miller, the State Department’s spokesperson stated, “No one has reached out to the United States about such a proposal…I cannot speak to a hypothetical proposal that I’m not even sure actually exists in reality.”At the same time, Israel’s defense minister indicated that the country’s retaliation to Iran’s recent missile attack will be “lethal and surprising”. The remarks come as the Israeli military continue their operations in north Gaza and Lebanon.
US weather
Hurricane Milton is yet another factor supporting crude oil market’s fundamentals in the near term. The hurricane made landfall in Florida on 9th October as a Category 3 storm. This comes about two weeks after Hurricane Helene caused devastation in parts of the southeastern state. Prior to the hurricane hitting the region, several energy companies shut down their pipelines and fuel terminals in the region. Cheron Corp. and Citgo Petroleum Corporation are among the companies that have shut down their Tampa terminals. The harsh weather and subsequent supply disruptions have contributed to crude oil prices’ rebound after recording two consecutive sessions of looses. Gasoline demand in the state rose with about 25% of fuel stations in the area running out of supplies. Even so, the surprise build in US oil inventories appear to be limiting WTI oil price’s upward movement. Data released by the American Petroleum Institute (API) on Tuesday showed that US fuel stockpiles dropped in the past week while crude oil inventories rose beyond expectations. In particular, the crude oil stocks were up by close to 11 million barrels. At the same, the US Energy Information Administration (EIA) has lowered its 2024 global oil demand forecast by 20,000 barrels per day. The downgrade is founded on the weak industrial growth in the two leading economies and top consumers of crude oil – the US and China. The weak oil demand outlook continues to underpin the fundamentals. Besides, the rallying of the US dollar has rendered the asset more expensive for buyers holding foreign currencies. These two aspects are limiting the asset’s rallying. Even so, there’s optimism that the Chinese stimulus will improve oil demand in the country in coming months.
Brent crude oil price forecast
The daily chart shows that Brent bottomed at $68.73 in September and has rebounded to $78.85 as tensions in the Middle East have escalated, and as China launched its stimulus package. It has moved above the 50-day and 100-day Exponential Moving Averages (EMA).Brent has moved to the 38.2% Fibonacci Retracement level. It has also risen above the key resistance point at $76.80, its lowest point on June 4th. The MACD indicator has continued rising, while the Relative Strength Index (RSI) has moved close to the overbought point.Therefore, crude oil will likely continue rising as investors focus on Israel’s reaction to Iran’s ballistic missile attack. If this happens, it will likely rise to the next point at $85.More By This Author:Uber Stock Price Forecast: Is It Too Late To Buy? Troubled Victoria’s Secret Stock Could Surge By 72%Procter & Gamble Stock Forms A Risky Pattern Ahead Of Earnings
