Rising Middle East tensions, declining inventories push global oil prices higher

WEB DESK: Global oil prices continued their upward trajectory on Thursday, following a nearly 4 per cent surge the previous day due to escalating geopolitical tensions in the Middle East.

Brent crude approached $81.39 per barrel, buoyed by a 3.8 per cent increase on Wednesday. Meanwhile, West Texas Intermediate (WTI) crude reached $78.43 per barrel, marking its most significant daily gain since October.

The surge in prices is linked to heightened geopolitical risks. Reports indicate that Iran’s Supreme Leader, Ayatollah Ali Khamenei, has ordered a direct strike against Israel.

This directive follows allegations from Iran that Israel was responsible for the assassination of a Hamas leader in Tehran, and the killing of a senior Hezbollah member in Beirut.

Amidst these tensions, the oil options market has experienced a surge in activity. On Wednesday, call volumes were at their highest level since April, with traders paying a premium for these contracts compared to bearish options.

In the US, officials are advocating for a ceasefire in Gaza. However, efforts have been complicated by the recent death of Hamas’ political leader Ismail Haniyeh, who played a crucial role in negotiations.

This volatility comes ahead of a key review meeting by the Organization of the Petroleum Exporting Countries (OPEC) and its allies. The session is expected to be routine, with no immediate changes to the planned restoration of production in the fourth quarter.

Shell CEO Wael Sawan noted that future price movements will be influenced by geopolitical developments, OPEC’s production decisions, and Chinese demand. Although crude prices have risen this year, a recent contraction in China’s manufacturing sector has raised concerns about future demand.

Additionally, US crude inventories fell by 3.4 million barrels last week, marking the longest streak of declines since January 2022.

Stockpiles at the Cushing hub also decreased. Federal Reserve Chair Jerome Powell hinted at a possible interest rate cut as early as September, which could further impact oil demand.

Read next: Petrol, diesel prices reduced in Pakistan