Crude oil prices increased during the early Asian trading session as tensions escalated in the Middle East over the weekend. Both benchmark oil prices reached their highest levels in a week, with Brent futures climbing by 0.66% to $79.54 per barrel, and West Texas Intermediate (WTI) futures rising by 0.68% to $75.34 per barrel as of 7 am CEST.
The surge in prices comes on the heels of Israel’s preemptive airstrikes in southern Lebanon, aimed at preventing an attack from Hezbollah. Despite these strikes, Hezbollah launched hundreds of rockets and drones in retaliation for the July killing of a senior leader. The intensifying military confrontation has fueled concerns about a broader Middle East conflict, particularly given the ongoing tensions between Iran and Israel.
Market fears of potential disruptions to oil supplies have buoyed prices, with analysts predicting further increases if the conflict worsens. Additionally, the possibility of additional Western sanctions on Iran could further tighten global oil supplies, exacerbating the situation.
The situation in the Middle East is not the only factor influencing oil prices. The U.S. dollar has weakened significantly against other major currencies following Federal Reserve Chairman Jerome Powell’s indication of a potential rate cut. This dovish shift in U.S. monetary policy could support further gains in oil prices.
On the supply side, ongoing concerns about undersupply persist. Recent data from the U.S. Energy Information Administration (EIA) revealed a significant drop in oil inventories, with a decline of 4.65 million barrels for the week ending August 16, far exceeding the expected draw of 2 million barrels. This decline follows OPEC+ production cuts, which are projected to continue reducing global oil inventories over the next few quarters.
OPEC and its allies had earlier agreed to extend production cuts of 3.66 million barrels per day until the end of 2025, with additional voluntary cuts continuing until September this year. These measures, coupled with the escalating tensions in the Middle East, are likely to keep oil prices on an upward trajectory.
