Oil prices have increased due to positive economic indicators from the US and China and increasing geopolitical tensions in the Middle East. While prices have declined significantly from earlier highs, market analysts observe supply-demand balances indicating potential recovery amid a resilient US economy. However, Goldman Sachs has lowered long-term oil demand forecasts due to global trading pressures.
Oil prices experienced an increase for the second consecutive session, driven by positive economic signals from China and the United States, the largest consumers of crude. West Texas Intermediate rose by 0.6% to settle just below $68 per barrel, following data indicating a modest slowdown in US retail sales, contrary to earlier predictions of a significant decline. Concurrently, China announced plans to implement measures aimed at stabilizing its stock and real estate markets, raising wages, and enhancing its birth rate, according to the state-run news agency Xinhua.
Geopolitical tensions resurfaced as US President Donald Trump stated that any maritime attacks by the Houthi militia would be treated as direct attacks by Tehran, potentially increasing the market’s geopolitical risk premium. Defense Secretary Pete Hegseth emphasized that US military actions against Houthi positions would continue until the group ceases its attacks on vessels in the Red Sea. Dennis Kissler, senior vice president for trading at BOK Financial Securities, noted that these geopolitical tensions might drive some major market short positions back to the sidelines.
In market activity, one fund reportedly placed an options bet equivalent to 20 million barrels of oil, anticipating a price increase if Middle Eastern tensions escalate, potentially pushing Brent’s June contract near $100, which is currently trading around $71. However, crude has declined over $10 per barrel from this year’s peak in January, influenced by escalating trade conflicts initiated by President Trump, an OPEC+ decision to boost supply, and the potential resolution of the Ukraine war, which could reintroduce Russian oil into the market.
Despite these declines, oil futures maintain a bullish backwardation structure, with shorter-term contracts commanding higher prices than longer-term ones, indicating balanced supply and demand. Goldman Sachs Group Inc. has revised its Brent crude price forecasts downward, citing an adverse economic outlook resulting from Trump’s trade disputes. The firm anticipates reduced oil demand growth due to tariffs impacting global economic prospects.
Nevertheless, Goldman forecasts that oil prices may experience “modest” recovery in the short term, attributing this resilience to a strong US economy and the lack of immediate easing of sanctions against Russia.
In summary, oil prices have risen due to optimistic economic signals from the US and China amidst escalating geopolitical tensions in the Middle East, particularly regarding Iran and the Houthis. Although prices have declined substantially from earlier highs this year, they remain in a bullish structure indicating favorable supply-demand dynamics. Analysts from Goldman Sachs predict potential short-term price recovery thanks to a resilient US economy, despite lowered long-term demand projections due to ongoing trade conflicts. Overall, the interplay of economic developments and geopolitical risks will continue to influence oil market dynamics.
Original Source: www.rigzone.com
