The recent escalation of Middle East tensions has significantly impacted US crude oil prices, leading to a breakout from a longer-term slump.
USOIL – Daily Chart
The USOIL price has not only broken out of the uptrend resistance near $80, but it’s also eyeing the $90 mark. However, given the current geopolitical backdrop, a sharp rise above $100 is not out of the question, potentially posing significant risks.
Increased tension in the Middle East is the theme this week for markets after Iran attacked Israel. This will also give the Federal Reserve more reason to scale back efforts to slow rate cuts after a spike in oil prices threatens to disrupt the central bank’s inflation fight.
After Israel and its allies shot down missiles and drones Iran launched on Saturday, investors are now looking for statements from Israel Prime Minister Benjamin Netanyahu and US President Joe Biden.
“The key risks for the global economy are whether this now escalates into a broader regional conflict, and what the response is in energy markets,” said Neil Shearing at Capital Economics. “A rise in oil prices would complicate efforts to bring inflation back to target in advanced economies, but will only have a material impact on central bank decisions if higher energy prices bleed into core inflation.”
The IEA predicts that oil demand will grow by 1.2 million barrels daily this year, marking a 130,000 b/d reduction from its previous monthly forecast. The oil data group said China’s oil demand had normalised after a post-COVID spurt and that a mild winter had moderated it.
