Oil prices rose on Tuesday in the global commodities market, fueled by expectations of a U.S. Federal Reserve interest rate cut, optimism about China’s economic recovery, and rising tensions in the Middle East, which are increasing concerns over supply.
While the U.S. benchmark, West Texas Intermediate (WTI), hit $68.38 per barrel, Brent crude increased to $72.22 per barrel. These increases come before of a major meeting of the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+), when members are expected to extend output curbs to battle worries of a global oil glut.
Recent data from China has sparked optimism, suggesting an improvement in the country’s economic activity, bolstered by continued government support. This has raised hopes of increased oil demand from the world’s largest crude importer.
In the U.S., anticipation surrounds the Federal Reserve’s meeting on December 18, with markets pricing in a 75% probability of a 25-basis-point interest rate cut. Lower interest rates typically stimulate economic activity, which could boost oil consumption and drive prices higher.
Meanwhile, the fragile geopolitical landscape in the Middle East has intensified oil market anxieties. Despite a ceasefire agreement with Lebanon, Israel has resumed assaults, targeting Hezbollah missile platforms in southern Lebanon.
The Israeli military confirmed bombing operations on Tuesday, reporting dozens of strikes on missile platforms. The attacks, occurring six days after the ceasefire, resulted in two fatalities, including a government official, and left many injured.
The renewed violence threatens to disrupt oil supply routes, further supporting the rise in crude prices.
As the OPEC+ meeting approaches, analysts expect the alliance to maintain its output cuts to stabilise prices. Combined with the potential for stronger demand from China and a more accommodative monetary policy in the U.S., oil prices are likely to remain volatile in the coming weeks.
With the Middle East conflict and economic policies influencing the outlook for crude oil, the confluence of geopolitical threats and economic forces highlights the delicate balance of global energy markets.
