Oil Prices Rise Amid Middle East Crisis, But Weekly Losses Continue

Oil Settles 1% Higher on Middle East Crisis Yet Posts Weekly Loss on Bearish Demand Outlook; Brent at $90/bbl

In the midst of geopolitical tensions in the Middle East, oil prices rose around one percent in the previous session. However, they still posted a weekly loss due to a bearish world oil demand growth forecast from the International Energy Agency (IEA) and concerns about delayed US interest rate cuts after hotter-than-expected inflation.

Brent crude futures settled up 71 cents at $90.45 per barrel, while US West Texas Intermediate (WTI) crude futures rose 64 cents to $85.66. For the week, Brent declined 0.8 percent, while WTI dropped more than one percent.

On the domestic front, crude oil futures settled 0.04 percent higher at ₹7,190 after hitting an intraday high of ₹7,322 on the Multi Commodity Exchange.

What’s Driving Crude Oil Prices?

The IEA recently cut its forecast for 2024 world oil demand growth to 1.2 million barrels per day (bpd). On the other hand, the Organization of Petroleum Exporting Countries (OPEC) stated that world oil demand will rise by 2.25 million bpd in 2024. Analysts believe that, for now, the market is mostly in the OPEC demand camp as opposed to the IEA’s reduced forecast.

During the week, oil prices neared a six-month high due to concerns that Iran, the third-largest OPEC producer, might retaliate for a suspected Israeli warplane attack on Iran’s embassy in Damascus. The market’s main focus is on whether Iran will retaliate against Israel, with the fear of supply disruption associated with the events in the Middle East supporting prices. The US expects an attack by Iran against Israel, but one that would not be big enough to draw the US into war. Tehran has signaled a response aimed at avoiding major escalation.

Supply chain issues still carry the biggest risk premium as Iran maintains its threat to shut the Suez Canal, according to economists at Matador Economics.

Friday’s gains erased the previous session’s losses, which were dominated by stubborn US inflation that dampened hopes for an interest rate cut as early as June. Higher interest rates can weaken economic growth and depress oil demand.

US energy firms have been cutting the number of oil rigs operating for a fourth week in a row, according to energy services firm Baker Hughes. The oil and gas rig count, an early indicator of future output, fell by three to 617 in the week ending April 12, the lowest since November.