Middle East Tensions Propel Crude Oil Prices to Further Gains

After increasing a dollar a barrel the previous day, oil prices continued to rise on Thursday as investors braced for a worsening of the Middle East crisis, which may involve Iran, the third-largest oil producer in OPEC.

By 03:25 GMT, U.S. West Texas Intermediate crude futures increased by 25 cents, or 0.3%, to $86.46 a barrel, while Brent crude futures increased by 30 cents, or 0.3%, to $90.78 a barrel.

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Israeli Airstrike in Gaza Fuels Concerns Over Ceasefire Talks

Following the deaths of three Hamas leader’s sons in an Israeli attack in Gaza, which fueled fears that peace negotiations between the two sides may break down, both contracts increased by more than 1% in the previous session. In their over six-month-long Gaza conflict, Israel and Hamas start new rounds of talks earlier this week, but no deal has been reach.

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Geopolitical Uncertainty in Middle East Keeps Oil Prices Volatile

According to Yeap Jun Rong, market strategist at IG, “prices remain sensitive to geopolitical developments in the Middle East, with market participants pricing for the risks of supply disruptions if tensions were to drag for longer.”

Yeap continued, alluding to U.S. interest rates, “This helps to offset some risk-off sentiments overnight, as markets recalibrate their rate expectations to price out a June rate cut and for rates to be kept high for longer until September.”

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Investor Sentiment Shifts Towards September Rate Cut Amid Stronger Inflation Data

Investors who had previously expected a rate cut in June now see September as a more likely starting point for the easing cycle, following a third consecutive higher-than-expected figure on consumer inflation. Yeap noted that oil’s upward trend may continue as the Middle East’s geopolitical environment remains uncertain.

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The region is on high alert for any Iranian reprisal following a reported Israeli bombing on Iran’s embassy in Syria earlier this month. According to a Bloomberg story published on Wednesday, the United States and its allies think Iran or its proxies are about to launch large missile or drone strikes against Israel.

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