Oil Prices Forecast: Middle East Conflict Could Alter Inventory Landscape

Highlights

• Israel-Hamas tensions shake oil markets, erasing last week’s steep declines in crude prices.
• Conflict disrupts Israel’s Ashkelon port and oil terminal, raising concerns over Middle East oil supply.
• Saudi-Israeli relations in limbo, potentially affecting future oil production and OPEC strategies.

Oil Markets Jittery Amid Israel-Hamas Conflict

Mounting tensions between Israel and Hamas have stoked volatility in oil markets, undoing some of last week’s steep losses. Although Israel is not a key crude producer, the conflict has implications for Middle East oil supply and has resulted in the shutdown of Israel’s port of Ashkelon and its oil terminal. Furthermore, the strife could thwart a potential rapprochement between Saudi Arabia and Israel, affecting future oil output.

At 05:12 GMT, December Brent crude oil futures are trading $87.75, down $0.40 or -0.41% and December WTI crude oil futures are at $84.24, down $0.36 or -0.43%.

Supply Concerns Heighten

Hamas’ military assault on Israel, and Israel’s subsequent airstrikes on Gaza, have escalated geopolitical risks that could disrupt oil supplies. U.S.-Saudi efforts to broker a deal with Israel hang in the balance, potentially limiting increased output next year as part of the deal. Market fears are exacerbated by potential U.S. sanctions tightening on Iran, another significant oil player, in response to the conflict.

Demand-Supply Balance in Jeopardy

Last week, Brent and WTI benchmarks plummeted around 11% and 8%, respectively, amid bleak global demand prospects. Now, this Israel-Hamas conflict threatens to further imbalance the supply-demand dynamics. Goldman Sachs suggests the turmoil could delay normalization between Israel and Saudi Arabia, affecting Saudi’s production plans, while any U.S. action against Iran might constrict Iranian exports further.

Venezuela: A Silver Lining

Amid the chaos, there is some positive news on the supply front. Talks between Venezuela and the U.S. are advancing, potentially allowing a foreign oil firm to lift Venezuelan crude, mitigating some supply tightness orchestrated by Saudi Arabia and Russia.

Short-Term Forecast: Bullish

In the immediate term, the oil market is likely to remain volatile, experiencing both supply concerns and shifts in geopolitical landscapes. Risk-averse investors should brace for heightened market sensitivity, as conflicts can dramatically shift market sentiments overnight.

Crude Oil Technical Analysis

The current daily price of light crude oil futures at 85.97 is marginally above the 50-Day moving average of 85.09, indicating short-term bullish momentum. It’s also significantly higher than the 200-Day moving average of 77.63, reinforcing a longer-term bullish trend.

The price sits between the main support at 82.68 and minor resistance at 92.49, further suggesting a bullish outlook. However, with the price recently slipping from 86.38 to 85.97, short-term caution is advised.

Overall, the market sentiment appears to be cautiously bullish.