On Monday, June 24th, Brent crude, the international benchmark, was trading at $84.53 per barrel at 8:18am GMT. This marks a slight increase of 0.24% from its previous closing price of $84.33 per barrel. Similarly, West Texas Intermediate (WTI), the American benchmark, traded at $80.90 per barrel at the same time, reflecting a 0.21% rise from its earlier closing price of $80.73 per barrel.
Ongoing geopolitical tensions are persistently threatening global energy supply routes and contributing to the upward pressure on oil prices. This article explores the key factors influencing the recent movements in oil prices.
Also read 5 Things to Know About Brent Crude Futures to learn more about crude oil futures.
Tensions Rise along Israel-Lebanon Borders
Heightened geopolitical tensions are currently jeopardizing global energy supply routes and contributing to the escalation of oil prices. Recent weeks have witnessed significant unrest along the Israeli-Lebanese border, prompting urgent calls from the US to de-escalate the situation.
Tensions have escalated sharply along Lebanon's border with Israel, marked by exchanges of fire between the Lebanese Hezbollah group and Israeli forces. The situation has intensified against the backdrop of Israel's ongoing military operations in Gaza, which have resulted in a significant loss of life among Palestinians since October last year.
Ryan McKay, senior commodity strategist at TD Securities, highlighted that the focus has shifted back to supply risks due to the mounting tensions at the Israel-Lebanon border. Both Israel and the Iran-backed Hezbollah militia have exchanged threats of potential conflict in recent weeks.
Prime Minister Benjamin Netanyahu announced Israel's intention to deploy additional forces to the northern region of the country, signaling the conclusion of an intense phase of military operations in Gaza.
Houthi Attacks Drive Crude Around Africa
.jpg)
Yemen's Houthi group has continued to target cargo ships in the Red Sea, particularly those owned or operated by Israeli companies or involved in trade related to Israel and Gaza. The Red Sea is crucial for global oil and fuel shipments, but attacks on vessels have prompted a significant increase in shipments taking the longer route between Asia, the Middle East, and the West.
According to the Energy Information Administration (EIA), there has been a 47% rise in global crude oil and oil products shipments via the longer route around the Cape of Good Hope since the attacks began. This shift has resulted in higher shipping costs, as historically about 12% of global shipping traffic passed through the Red Sea and Suez Canal.
In the first five months of 2024, approximately 8.7 million barrels per day (bpd) of crude and refined products chose the Southern Africa route, up from an average of 5.9 million bpd in 2023. Most of this increase was in oil product volumes, as reported by ship tracking data from Vortexa, an analytics firm.
Saudi Arabia and Iraq have notably increased shipments of crude oil to Europe via the Cape route, bypassing the Red Sea and Suez Canal, accounting for 15% of the overall increase in shipments.
Uncertainty Over Rate Cuts Limited Upward Potential
The number of initial unemployment claims by Americans decreased last week.
The labor market's pace has slowed along with the broader economy, influenced by the Federal Reserve's tightening measures aimed at combating inflation. As inflationary pressures ease, the possibility of a rate cut later this year remains under consideration.
On June 12, the Federal Reserve announced its latest monetary policy decisions and economic projections, opting to maintain the policy rate unchanged at 5.25–5.50%, in line with expectations. This rate is the highest in 23 years.
Analysts suggest that prolonged high interest rates could present challenges for the outlook on oil demand. Lowering rates could potentially bolster oil prices, which have been subdued this year due to sluggish global demand. A rate cut in the United States would reduce borrowing costs in the world's largest economy, potentially boosting oil consumption as production activities accelerate.
Navigating the Future of Oil Futures
On the first week of July, oil prices experienced notable fluctuations, largely buoyed by expectations of increased summer demand and heightened anticipation of Federal Reserve interest rate cuts. The latest bullish EIA inventory report revealed significant declines in crude oil, gasoline, and diesel stocks, particularly with crude oil inventories falling by over 10 million barrels.
Refinery processing volumes showed a week-on-week rebound, surpassing the levels seen in the second quarter of the past three years. Weather forecasts indicate higher-than-normal Atlantic hurricane activity this year raise concerns, as hurricanes typically disrupt refinery operations more than crude oil production, potentially impacting the market in the upcoming months.
Despite challenges, the decrease in gasoline inventories signals positive prospects, lending support to expectations for the peak season. Although the four-week moving average of weekly domestic gasoline supply is catching up, it remains below last year's levels.
Start Trading with Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us, opening additional trading avenues.
Expect streamlined processes and an easy-to-use interface designed for minimal latency, accompanied by our team's round-the-clock availability on trading days to provide assistance for all your trading needs.
