Tensions in the Middle East also weigh on crude oil markets

Rashid Husain Syed: Oil prices fall as markets react to high interest ratesAs concerns over an escalating conflict grew, markets softened last week instead of stabilizing. Oil prices dropped on Friday, leading to a weekly decline. West Texas Intermediate (WTI) crude futures fell by $2.12, or 2.7 percent, closing at $76.49. For the week, Brent crude dropped approximately two percent, and WTI fell more than three percent.

According to Bloomberg, markets experienced this downturn as worries over extended high-interest rates dampened the overall mood, offsetting evidence of a tightening oil market. U.S. Federal Reserve Governor Christopher Waller suggested on Thursday that Federal Reserve officials should postpone any cuts to interest rates for at least a few more months. Analysts emphasized that this could decelerate economic growth and reduce oil demand.

Markets might soften further if the ongoing ceasefire talks in the Middle East reach a positive outcome. “A successful ceasefire could lead the market to expect a reduction in geopolitical tensions,” said Tim Evans, an independent oil market analyst, in a statement reported by Reuters. Many believe this could help reduce the war premium. Given the escalating tensions in the Middle East conflict zone, it’s evident that the crude markets are set to remain subdued.

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While rising geopolitical tensions in the Middle East, and OPEC+’s attempts to reduce production are influencing the markets, negative factors, particularly weak demand, especially from China, the top importer, continue to adversely affect the sentiment in the crude market.

For now, eyes remain focused on the ongoing war in the Middle East. The prolonged Palestine-Israel conflict continues to take its toll in many ways. It’s starting to affect the movement of oil and goods through the Red Sea, putting strain on international trade and causing transportation costs to increase.

Since Nov. 19, at least 40 vessels have been attacked by Houthis, Aljazeera reported, quoting an analysis of data from Ambrey Analytics. With oil being the world’s largest traded commodity and the Middle East a significant supplier of crude to the world, markets cannot stay oblivious to this.

Houthis have been hitting commercial vessels passing through the Red Sea since November, saying that the attacks would continue until Israel ends its war on Gaza.

In an effort to prevent the Houthis from disrupting Red Sea traffic, the U.S. and the United Kingdom, supported by various Western allies, have conducted bombings across Yemen’s governorates. This military action has now turned into a daily occurrence. Yet, the efforts have so far failed to produce the desired results.

The militia hit the United Kingdom-owned, Belize-flagged bulk carrier Rubymar on Feb. 18 with multiple missiles. It was sailing through the Bab al-Mandeb Strait, which connects the Red Sea and the Gulf of Aden, on its way to Bulgaria after leaving Khor Fakkan in the United Arab Emirates. Early last week, the Houthis, who control Yemen’s most populous regions, struck what they said was an Israeli cargo ship, the MSC Silver, in the Gulf of Aden near the entrance to the Red Sea.

According to Aljazeera, Houthi military spokesperson Yahya Saree claimed that the group had also used drones to target several U.S. warships in the Red Sea and Arabian Sea, as well as sites in the southern Israeli resort town of Eilat.

A Houthi spokesperson recently claimed that the group has recruited and trained more than 200,000 new fighters since the start of the Gaza war. This is a significant number. The war has all the possibility of flaring up.

But despite all this, markets are not red hot. This is significant, which means the market trajectory may not be rosy unless something unforeseen rocks the fundamentals. Nothing of that sort is in sight – at least for now.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to both local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. His insights on global energy matters have been sought after by organizations such as the Department of Energy in Washington and the International Energy Agency in Paris.

For interview requests, click here.


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