Oil prices showed modest gains on Monday as the market responded to a mix of positive and negative global drivers. U.S. crude futures rose by 0.30%, reaching $71.21 per barrel, while Brent crude, the international benchmark, increased by 0.21% to $74.65 per barrel. These small upticks followed a strong performance last week when both oil benchmarks recorded gains of more than 4%. The rise in prices was driven primarily by the Federal Reserve's recent decision to cut interest rates, along with heightened tensions in the Middle East.
The U.S. Federal Reserve's move to reduce interest rates by 50 basis points provided some optimism for the market. The rate cut signaled potential economic easing, which typically benefits risky assets like oil. Charalampos Pissouros, a senior investment analyst at brokerage XM, commented on the Fed's decision, stating, "While weaker demand from China is limiting the upside, the Federal Reserve's rate cut has added some positive momentum to the oil market."
However, economic concerns are still looming. The Eurozone, a major oil consumer, saw its business activity contract sharply, particularly in the services and manufacturing sectors. This, combined with weaker-than-expected economic performance from China, dampened any significant gains in oil prices. UBS analyst Giovanni Staunovo noted, "There was some hope earlier this morning that additional Chinese monetary stimulus might be forthcoming, but weaker European data turned market sentiment from positive to negative."
Beyond economic factors, geopolitical risks in the Middle East continue to be a critical driver of oil prices. Over the weekend, Israel conducted a widespread wave of airstrikes against Hezbollah in Lebanon, marking one of the most significant escalations in the region since the conflict began nearly a year ago. These strikes targeted Hezbollah strongholds in southern Lebanon, the Bekaa Valley, and areas near the Syrian border. Hezbollah retaliated with rocket attacks into northern Israel, intensifying fears of a broader regional conflict.
According to Mazen Salhab, a chief market strategist at BDSwiss, "The escalating tensions between Israel and Hezbollah are heightening concerns about a potential disruption in regional oil supplies, which could put upward pressure on the market."
Despite these tensions, the actual impact on oil supply has been limited so far. Analysts are watching closely for any signs that the conflict could disrupt oil production or distribution in the region. "Geopolitical risks are supporting oil prices, but the market remains cautious because the Middle East conflict has not yet significantly impacted supply," Salhab added.
The market is also keeping an eye on potential developments from China, the world's largest oil importer. Last week, the People's Bank of China cut its 14-day reverse repo rate by 10 basis points, injecting liquidity into the financial system to support economic sentiment. While economists do not expect this move to signal a major policy shift, it has fueled expectations that Beijing may announce further stimulus measures to boost its ailing economy. Any significant improvement in Chinese demand could provide a further boost to oil prices.
In addition to geopolitical and economic concerns, the U.S. crude oil market is also being influenced by supply issues. The aftermath of Hurricane Francine, which caused a temporary dip in U.S. crude supply, is still being felt. Elevated U.S. crude exports are also tightening domestic supply, further supporting prices.
Market participants are awaiting further economic data from Europe and the U.S. to assess the future direction of oil prices. According to Harry Tchilinguirian, head of research at Onyx Capital Group, "The market will look to flash purchasing managers' index (PMI) releases in Europe and the U.S. for economic direction. If these disappoint, there is likely to be downward pressure on oil prices."
Meanwhile, the Israeli military has issued warnings to residents in southern Lebanon, advising them to leave buildings suspected of storing Hezbollah weapons. This unprecedented move raises concerns about a further escalation in the conflict, which could lead to broader disruptions in the oil market. Lebanese media reported that many residents received text messages from the Israeli military urging them to move away from any buildings housing Hezbollah arms. The Lebanese Health Ministry has asked hospitals in southern Lebanon to postpone non-urgent surgeries in anticipation of more casualties from the ongoing strikes.
