Global (Commonwealth) _ A suspension in Libyan oil output and increased Middle East tensions caused oil prices to spike dramatically on Monday. Although Brent (BZ=F), the global benchmark price, jumped over 3% to close at $81.43 per barrel, West Texas Intermediate (CL=F) increased more than 3% to conclude at $77.42 per barrel.
Fears of a wider confrontation including Iran erupting in the area were increased over the weekend when Israel launched an attack against Hezbollah’s rocket launch sites in Lebanon, which is sponsored by Tehran.
In a letter to clients on Monday, Dennis Kissler, senior vice president at BOK Financial, stated, “The rise in tensions could bring an Iranian military response which, if seen, could slow global oil movements.”
Iran-supported as a form of protest against the Israel-Hamas conflict, Houthi rebels have persisted in their attacks on Red Sea shipping. Following its targeting last week, a Greek oil ship caught fire over the weekend.
Prices increased further after the eastern government of Libya declared it would temporarily halt production and exports due to a disagreement over the central bank’s leadership. IEA data shows that Libya produced over a million barrels of petroleum per day last month.
Bob Iaccino, chief market strategist at Path Trading Partners and co-founder, told Yahoo Finance, “We have demand fears, and those are truly embedded in the markets right now.” Over the last three sessions, oil has increased by more than 5%.
Following Israel’s coordinated bombing against Hezbollah fighters in Lebanon, crude oil prices are surging, while gold’s record-breaking ascent continues. In light of the mounting tensions in the Middle East, Yahoo Finance markets and date editor Jarred Blikre joins the Morning Brief to discuss the most recent price movements in the commodities markets.
A weaker US currency might lead to additional increases in oil prices. In the wake of Friday’s Jackson Hole Symposium, the US dollar’s value relative to other major currencies in the G-10 group declined sharply.
Chairman of the Federal Reserve Jerome Powell hinted to what was thought to be a major change in monetary policy—a rate decrease in September. This policy move is projected to cause the dollar to continue its downward path, which might encourage a further increase in oil prices.
There have also been hints of more rate cuts for the rest of the year from other central banks, such as the Bank of England and the European Central Bank. Relaxing monetary policy may encourage economic expansion in these important nations, improving the prospects for global demand.
Concerns about undersupply
The first week of August saw a more than 4% increase in oil prices due to growing demand and increased tensions following Iran’s threat of military response for the death of a Hamas leader. However, due to weak Chinese economic statistics and indications of a defusing Middle East conflict, oil prices fell precipitously in the middle of August.
But the current spike over the weekend may lead to a recovery in the oil markets. In contrast to the anticipated draw of 2 million barrels, data from the US Energy Information Administration (EIA) showed that oil stockpiles decreased by 4.65 million barrels for the week ending August 16.
Even still, the US has seen a decline in gas prices since its August peak. According to AAA data, the national average price of gasoline was around $3.35 per gallon, which is $0.16 less than a month ago and $0.47 less than a year ago.
Tom Kloza, global head of energy analysis at OPIS, told Yahoo Finance on Monday that the trading community is unwilling to chase gasoline higher, especially since hurricane season will spare the US Gulf in August and cooling of the Atlantic could reduce the chances of any tropical development in September or October.
According to Kloza, the US usually experiences a 5%–6% decrease in gasoline demand, or around 400,000 barrels per day, just after Labor Day. If the oil coalition OPEC+ proceeds with its planned release of more crude supplies into the global market, the oil market may also need to absorb more supply.
We are not witnessing enough strength to spark a substantial rebound, according to Kloza, but the gains [in oil prices] on Thursday, Friday, and today most likely ‘arrest’ the slow-motion drop that was occurring for retail gasoline. He said, “I still think that the US is headed for a fourth quarter with the lowest gas pump prices since 2021.”
