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Oil prices edged higher on Monday, driven by concerns over potential supply disruptions in the Middle East and optimism that the U.S. Federal Reserve’s significant interest rate cut last week would support demand.
Brent crude futures for November delivery rose 22 cents, or 0.3%, to $74.71 a barrel by 0705 GMT, while U.S. crude futures for November increased by 26 cents, or 0.4%, to $71.26. Both benchmarks had experienced gains in the previous session, fueled by the U.S. rate cut and a reduction in U.S. supply following Hurricane Francine. Notably, oil prices recorded a second consecutive week of growth last week.
Middle East Conflict Heightens Supply Concerns
The escalation of conflict in the Middle East has added to supply concerns, as the Israeli military launched its most extensive air strikes against the Iran-backed Hezbollah, targeting regions in southern Lebanon, the Bekaa Valley, and areas near Syria. This marks one of the most intense phases of cross-border exchanges in a year-long conflict, occurring alongside ongoing hostilities between Israel and Hamas in Gaza. Recent explosions involving pagers and walkie-talkies used by Hezbollah members have further intensified tensions, although Israel has not officially confirmed its involvement in these incidents.
Despite the upward momentum, a weaker economic outlook in major oil-consuming countries like China and the U.S. has limited further price increases. Priyanka Sachdeva, a senior market analyst at Phillip Nova, highlighted that weak demand sentiment in China, the world’s top oil importer, is capping the upswing in oil prices.
Impact of the U.S. Federal Reserve Rate Cut
The U.S. Federal Reserve’s decision to cut interest rates by 50 basis points last Wednesday—more than many analysts had anticipated—provided a boost to economic activity and energy demand. While rate cuts typically stimulate economic growth, there are concerns that the U.S. job market might be slowing, which could temper the potential benefits of the central bank’s easing measures.
Overall, while geopolitical tensions and economic policy shifts have supported oil prices, market participants remain cautious about demand uncertainties in the coming months, especially from top-consuming economies.
