Rising Middle East Tensions Cause Oil Prices To Reverse Trajectory

But China's poor economic data continues to cap gains: File Image/Pixabay

Whether it was a blip or the beginning of a turnaround, a sudden no-risk tone infused crude trading on Thursday, after the U.S. Federal Reserve's earlier interest rate cuts were greeted with concern rather than relief.

As of 1619 GMT, Brent rose by $1.44 to $75.09 per barrel, while West Texas Intermediate gained $1.53 to $72.44 per barrel.

Phil Flynn, senior market analyst at Price Futures Group Inc., said the Fed cut appears to be "shaking out some hedge fund shorts from their bearish oil obsession."

The Fed in the previous session cut interest rates by half a percentage point, instantly provoking speculation that the central bank sees a slowing job market – which in turn could slow the economy and, by extension, demand; the central bank also indicated they may make two additional 25 basis point rate cuts before the end of this year, in November and December, along with four cuts in 2025 and two in 2026.

ANZ analysts said in a note, "While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates."

It's unclear what caused traders' shift in trajectory, but Tim Snyder, chief economist at Matador Economics, speculated that rising tensions in the Middle East boosted crude prices; however, Alex Hodes, oil analyst at brokerage StoneX, added that weak demand from China's slowing economy limited gains.

For the record, Israeli warplanes and artillery on Thursday carried out strikes against Hezbollah in Lebanon.

Helima Croft, head of global commodity strategy at RBC Capital Markets, told clients, "We continue to highlight Lebanon as the main pathway to oil disruption through direct Iranian involvement in a wider regional war."

In other oil news on Thursday, Bloomberg reported that Canada's expanded Trans Mountain pipeline, which shifts Canadian oil supplies onto that country's Pacific Coast and away from the U.S. Gulf Coast, has resulted in inventories in Cushing, Oklahoma dwindling for the past four months and now sitting near the lowest in a decade for this time of year.

Scott Shelton, an energy specialist at TP ICAP Group, said, "With Libya risks, I tend to think storage will stay at tank bottoms in the near term, and the market will make WTI too expensive to export."