Oil Prices Rise Amid Middle East Tensions and Supply Uncertainty

October 25, 2024 03:41 PM AEDT | By Team Kalkine Media

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Oil Prices Rise Amid Middle East Tensions and Supply Uncertainty — Image source: shutterstock

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Highlights

Oil prices edge higher as Middle East tensions remain the focus.

Concerns about global demand and supply glut impact market sentiment.

Geopolitical developments influence potential price movements.

Oil prices saw a slight increase after a two-day decline, as traders kept a close eye on developments in the Middle East. Brent crude, a global benchmark, rose toward $US75 a barrel after experiencing a drop of more than 2% over the last two trading sessions. West Texas Intermediate (WTI) hovered around $US71. Ongoing negotiations between Israel and Hamas are expected in the coming days, aiming to resolve the conflict in Gaza. Simultaneously, the market is closely monitoring the possibility of a retaliatory strike by Israel on Iran, which could further escalate tensions in the region.

The oil market has been volatile this month due to geopolitical instability in the Middle East, combined with concerns over potential supply issues next year. Non-OPEC+ producers are expected to increase output, which could lead to an oversupply in the market. Additionally, OPEC+ has plans to ease its production cuts, further adding to the uncertainty surrounding future oil supply.

The International Energy Agency (IEA) recently issued a warning, stating that global oil demand growth is likely to slow. This is largely due to China's economic slowdown and the increasing adoption of electric vehicles, both of which could reduce oil consumption in the coming years. This has contributed to the overall uncertainty in the oil market.

Brent crude's prompt spread, a key market indicator, remains in backwardation. This refers to a market situation where near-term prices are higher than those in the future. On Friday, the spread was recorded at 38 cents a barrel, aligning with figures from the previous week and showing a slight increase compared to the prior month.

While the ongoing Middle East tensions continue to drive short-term oil price fluctuations, longer-term concerns about supply and demand dynamics are also weighing heavily on traders' minds. The outcome of both geopolitical developments and changes in production levels will be key factors shaping the oil market in the near future.

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