Geopolitical Tensions and Fed Rate Cut Boost Oil Prices; Crude Extends Rally

Price

• Oil prices extended gains on Monday due to concerns that the Gaza conflict could disrupt regional oil supplies and expectations of imminent U.S. interest rate cuts, which improved the global economic and fuel demand outlook.
• Brent crude futures climbed 37 cents, or 0.5%, to $79.39 a barrel by 2300 GMT, while U.S. crude futures were at $75.19 a barrel, up 36 cents, or 0.5%. MCX Crude oil prices opened at 6346, with a gain of 0.84%.

Demand and Supply

• In one of the biggest clashes in over 10 months of border warfare, Hezbollah fired hundreds of rockets and drones into Israel on Sunday, prompting Israel’s military to strike Lebanon with around 100 jets to thwart a larger attack.
• This escalation raises fears that the Gaza conflict could expand into a regional conflagration involving Hezbollah’s backer Iran and Israel’s main ally, the United States.
• “Israel’s pre-emptive strike on Lebanon over the weekend to prevent an imminent attack from Hezbollah should ensure a stronger open this morning, as (WTI) crude looks to extend its rally initially towards $77.50, before $80.00,” IG analyst Tony Sycamore said in a note.
• Both oil benchmarks gained more than 2% on Friday after U.S. Federal Reserve Chair Jerome Powell endorsed an imminent start to interest rate cuts.
• “The prospect of easing monetary policy boosted sentiment across the commodity complex,” ANZ analysts said, adding that they expect the Fed will implement a progressive series of rate cuts.

News

• WTI crude is currently testing critical resistance around the $75.49 level, marked by a double top formation. This resistance could limit further gains, but if prices break above this point, WTI may continue its upward trajectory towards the next resistance levels at $76.82, $78.27, and $79.67.
• "The cartel had recently trimmed its outlook for global oil demand, citing concerns over weak demand in top oil importer China," Sachdeva said.
• "Current robust U.S. demand and refilling of SPR reserves look to be the only support for oil prices against the risk of excess OPEC supply," she said, referring to the U.S. Strategic Petroleum Reserve (SPR).
• The U.S. Energy Department said on Friday it bought nearly 2.5 million barrels of oil to help replenish the SPR.

Expert's Opinion

• Crude oil prices are expected to rebound in the short term, supported by anticipation of a U.S. Federal Reserve rate cut and increased geopolitical tensions. Prices are currently above $75 per barrel and may rise further due to OPEC+ production cuts and reduced U.S. stockpiles.
• However, the broader outlook remains bearish with persistent demand concerns, especially from China, and potential supply increases. Market sentiment is cautious, and sustaining prices above $79-80 per barrel appears unlikely. The market will closely watch upcoming economic data and geopolitical developments for further direction.