Oil Traders Monitor Middle East Risks

Oil prices are looking a little more muted through early European trading on Friday following a fresh surge higher yesterday. Traders are watching developments in the Middle East with caution amidst an uptick in aggression between Israel and Hezbollah. Israeli missile attacks on Hezbollah positions in Lebanon have sparked strong outcry from the global community with fears that Israel is planning a ground invasion which risks sparking a much broader conflict in the Middle East. Given the situation, there are clear upside risks for oil prices with the risk of severe supply disruption if the violence escalates in the region. As such, crude futures are likely to remain highly sensitive to incoming headlines.

Fed & USD Impact

A weaker US Dollar is also helping underpin oil prices here. A .5% rate cut from the Fed this week, along with dovish revisions to the bank’s dot-plot forecasts, has seen USD trading lower. With the Fed expected to push ahead with further easing in coming months, the US Dollar looks vulnerable to further downside, particularly if we see continued weakness in jobs and inflation data. As such, commodities prices, including oil, stand to gain through year-end.

Demand Concerns

The caveat to this for oil, is the ongoing demand concerns we’re seeing linked to weaker industrial data out of China and the US. OPEC+ recently extended its supply cuts through to December given its reduced demand outlook for the year. As such, oil rallies might be limited near-term in response to any further headlines around demand concerns.

Technical Views

Crude

The rally in crude has seen price breaking back above the bear channel lows and back above 67.45. The move has stalled for now ahead of the 72.61 level. This is a key near-term pivot for the market which bulls need to breach in order to shift focus onto a fuller recovery towards 77.64 next.