July 25, 2024
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Oil Prices Rise on Optimistic Demand Outlook, Middle East Tensions

Oil prices climbed on Tuesday, lifted by positive indicators suggesting potential demand improvements in China and the United States, the world’s largest oil consumers.

Additionally, escalating concerns about a widening conflict in the Middle East contributed to market jitters over potential disruptions to the region’s oil supply.

According to Reuters, Brent crude futures for June delivery gained 58 cents to reach $88 a barrel by 0641 GMT, while U.S. West Texas Intermediate (WTI) crude futures for May rose 58 cents to $84.29 a barrel, marking its highest closing level for a front month contract since October 27 in the previous session.

“The bullish catalysts for oil prices continue to pile up, with stronger-than-expected economic conditions in China and the U.S. offering a more optimistic demand outlook, while geopolitical tensions in the Middle East continue to heat up with the involvement of Iran,” said IG market strategist Yeap Jun Rong.

Manufacturing activity expanded in March in China for the first time in six months and in the U.S. for the first time in 18 months, indicating potential growth in oil consumption. China, the largest importer of crude oil, and the U.S., the largest consumer globally, play pivotal roles in shaping oil market dynamics.

Meanwhile, escalating tensions in the Middle East added to market concerns. An Israeli strike on Iran’s embassy in Syria resulted in casualties, including senior military advisors, heightening fears of a broader conflict involving Israel and Iran-backed groups like Hamas in Gaza. The potential expansion of the conflict to directly involve Iran raises apprehensions about oil supply disruptions in the region.

“To date, the market hasn’t been worried about supply disruptions, with the war remaining contained. Iran’s involvement could see its oil supply under threat,” ANZ analysts told Reuters.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are scheduled to convene an online meeting of its Joint Ministerial Monitoring Committee on Wednesday to assess market conditions and members’ compliance with output cuts.

Members are expected to maintain their current supply policy, which includes voluntary output reductions of 2.2 million barrels per day (bpd) until the end of the second quarter. OPEC’s recent output data indicated a slight decline of 50,000 bpd, signaling some effectiveness of the voluntary cuts.

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