WTI bounces back to near $77 on upside risks to widening Middle East woes
|- The Oil price recovers to near $77 on fresh supply concerns after Iran-backed Hezbollah’s rocket strike on Golan Heights.
- Caixin Manufacturing PMI for July and the Fed’s policy meeting will guide the next move in the Oil price.
- The Fed is expected to deliver dovish guidance on interest rates.
West Texas Intermediate (WTI), futures on NYMEX, rebound to near $77.00 in Monday’s European session after plunging to near $76.00 on Friday. The Oil price rebounds as an air strike in the Israeli-occupied Golan Heights has prompted fears of widening Middle East tensions.
The Israeli and the United States (US) governments have held Iran-backed Hezbollah responsible for the rocket strike on Golan Heights that killed 12 people. In response to that, Israel has vowed to retaliate, which has resulted in upside risks to the Oil supply concerns.
While the Oil recovery move is still uncertain due to uncertainty over its global demand amid economic vulnerability in China, which is its largest importer in the world. Oil imports volume by China has fallen significantly as the scale of spending and investment has declined due to weak demand from domestic and the overseas market.
This week, the Caixin Manufacturing PMI for July and the Federal Reserve’s (Fed) monetary policy meeting will be the key triggers for the Oil price. Activities in the Chinese manufacturing sector are estimated to have expanded at a slower pace to 51.6 from the former release of 51.8.
Meanwhile, the Fed is expected to leave interest rates unchanged in the range of 5.25%-5.50% for the eighth time in a row but turn dovish for the remaining year. Investors expect that the Fed will admit to decent progress in disinflation and potential risks to the labor market. The Fed could openly endorse rate cuts in September but will refrain from committing to a specific rate-cut path.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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