WTI Up After Geo Events and OPEC

Oil prices increased substantially last week due to rising tensions in the Middle East and OPEC's production policy decision. The price of WTI reached its highest point since October as worries grew over potential conflict. Can it continue as things de-escalate?

Speculative Rally?

Crude oil prices rallied by 5% over the course of last week. Tight supply concerns in an environment of rising geopolitical risks largely drove this winning streak of almost $15 per barrel. OPEC+ opted to leave production levels unchanged at their meeting, adding to price pressures given already high prices. Simultaneously, a weaker US dollar ahead of important employment data helped boost commodity prices more broadly, including gold, which also received a geopolitical premium.

The main point of concern was what response, if any, Iran may undertake in retaliation to an Israeli airstrike in Damascus that resulted in the death of a high-ranking Iranian military official. An Iranian attack on Israeli territory could significantly escalate tensions in their ongoing proxy conflict, which is seen as a threat to regional oil supply flows through the crucial Strait of Hormuz, given Iran's position as a major Middle Eastern producer despite international sanctions.​

Change in Sentiment

The price of WTI fell over 2% in early trading on Monday, briefly dropping below $85 per barrel. This followed reports that Israel was withdrawing nearly all troops from Southern Gaza, leaving just one brigade remaining in the city of Khan Younis. However, the movement does not necessarily mean the planned assault on the Rafah crossing, where remaining Hamas elements are believed to be located, will not proceed. Concurrent news that Egypt is preparing fresh peace talks between Hamas and Israel, combined with the troop pullback, appears to be viewed as an indication that tensions may be easing.

Analysts suggest the market could be interpreting Israel's withdrawal as a sign it is acquiescing to international pressure for a sooner end to the conflict, potentially impacting optimism around de-escalating tensions. The upcoming week marks the end of Ramadan and Eid holidays, which may present an opportunity to reach an agreement over Gaza and see crude prices return to pre-recent geopolitical event levels, assuming escalation concerns do not resurface in the interim.​

WTI in Accelerated Trend, Still

The recent acceleration in oil prices above the upper boundary of the prevailing price channel indicates continued strength. However, reentry into the channel could expose previous supports at $83 and $80 per barrel. Conversely, reclaiming the recent swing high of $88 could provide access to $90 and potentially retesting the previous high of $95.

Source: SpreadEx / Light Crude

Key takeaways

Crude oil rallied last week on escalating geopolitical tensions in the Middle East and OPEC's production policy. However, oil prices dropped over 1% on Monday as Israel withdrew troops from Gaza, signalling easing tensions could reduce disruption risks to the key Strait of Hormuz supply route. Analysts suggest markets may see an opportunity for peace talks during upcoming religious holidays.​