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Oil Prices Edge Upward on Supply Concerns Amidst Geopolitical Tensions

Oil Prices Edge Upward on Supply Concerns Amidst Geopolitical Tensions
"Close up aerial photo of a large oil tanker, with an oil rig in the far distance."

Oil Prices Edge Upward on Supply Concerns Amidst Geopolitical Tensions

Oil prices continued their upward trend for the third consecutive day, with a slight increase in early Asian trading on Monday. This rise was primarily driven by worries about potential supply disruptions due to ongoing shipping issues in the Red Sea.

Prices Gain Momentum:

  • Brent crude futures rose by 16 cents, or 0.2%, reaching $82.69 per barrel.
  • U.S. West Texas Intermediate crude (WTI) also saw a 0.2% increase, climbing to $77.73 per barrel.

Geopolitical Factors:

  • The recent attacks by the Iran-aligned Houthis on shipping vessels in the Red Sea, combined with the ongoing Israel-Hamas conflict, have raised concerns about potential oil supply disruptions.
  • While the Israel-Hamas conflict hasn’t significantly impacted oil supply yet, it has caused an increase in freight rates and shipping times, keeping oil barrels at sea for longer periods.

Hope for Ceasefire:

  • U.S. President Joe Biden expressed hopes for a ceasefire in the Israel-Hamas conflict by next Monday, as negotiations in Qatar aimed at reaching a truce and securing the release of hostages appear to be making progress.
  • However, both Israel and Hamas continue to publicly hold strong stances and blame each other for delays in reaching a deal.

Interest Rate Concerns:

  • Additionally, the recent comments by Kansas City Federal Reserve Bank President Jeffrey Schmid indicate that the central bank is unlikely to implement interest rate cuts anytime soon, in line with the general stance amongst central bankers.
  • Higher interest rates can typically lead to slower economic growth and a decrease in oil demand.

Overall, the slight increase in oil prices reflects market anxieties surrounding potential supply disruptions caused by ongoing geopolitical tensions and the impact of economic policies on future demand.

The article mentions that the Houthis, a group aligned with Iran, have been attacking ships in the Red Sea, causing worries about the movement of oil. Additionally, the conflict between Israel and Hamas hasn’t directly affected oil supply, but it has led to higher shipping costs and longer shipping times, which means oil sits on ships for longer periods before reaching its destination.

There’s also news about efforts to bring about a ceasefire in the Israel-Hamas conflict. U.S. President Joe Biden expressed hope for a ceasefire to start by the following Monday, as negotiations in Qatar aimed to not only stop the fighting but also secure the release of hostages.

However, publicly, Israel and Hamas were still far apart in their positions regarding a truce, each blaming the other for delays.

Iran-aligned Houthis have continued their attacks on shipping in the Red Sea, and while the Israel-Hamas war has not significantly constrained oil supply, it has increased freight rates and shipping time, leaving barrels on the water for longer. U.S. President Joe Biden said on Monday he hopes to have a ceasefire in the Israel-Hamas conflict in Gaza start by next Monday as the warring parties appeared to close in on a deal during negotiations in Qatar that also aim to broker the release of hostages. In public, Israel and Hamas continued to take positions far apart on a possible truce, while blaming each other for delays.

Lastly, the article mentions remarks from Jeffrey Schmid, a Federal Reserve Bank president, who indicated that he and his colleagues are not eager to lower interest rates. Lowering interest rates can reduce economic growth and, consequently, oil demand.

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