Oil prices jump 2% as investors evaluate Iran-Israel peace
Oil prices increased by 2 per cent on Wednesday as investors evaluated the durability of a ceasefire between Iran and Israel. Additionally, market expectations of potential interest rate cuts in the United States, the world’s largest economy, provided further support. Brent crude futures increased by $1.31, representing a 2 percent rise, reaching $68.45 per barrel at 0750 GMT. Meanwhile, US West Texas Intermediate crude saw a gain of $1.24, or 1.9 percent, ringing it to $65.61. Brent concluded trading on Tuesday at its lowest level since June 10, while WTI reached its lowest since June 5, both preceding Israel’s unexpected assault on significant Iranian military and nuclear sites on June 13.
Prices surged to five-month peaks following the US military action against Iran’s nuclear facilities over the weekend. “Geopolitical risk premiums have diminished and will recede into the background for the time being…” Fed Chair Powell’s initial testimony to Congress has suggested a modest possibility of advancing the first rate cut of 2025 to July, which is expected to provide some support for oil prices from the demand perspective, according to OANDA senior market analyst Kelvin Wong. He noted that technical factors were responsible for the price increases observed during the session.
Typically, lower interest rates stimulate economic growth and increase demand for oil. A series of US macroeconomic indicators published overnight, particularly regarding consumer confidence, indicated potentially weaker-than-anticipated economic growth in the world’s largest oil consumer. This development has reinforced expectations for Federal Reserve rate cuts in the upcoming year. Futures indicate an anticipated easing of nearly 60 basis points by December.
On the geopolitical front, a preliminary US intelligence assessment indicated that US airstrikes did not eliminate Iran’s nuclear capability, merely delaying it by a few months, as a tenuous ceasefire mediated by US President Donald Trump was established between Iran and Israel. On Tuesday, both Iran and Israel indicated that the aerial conflict between the two countries had concluded, at least temporarily, following Trump’s public admonition regarding their breach of a ceasefire. Following the cessation of civilian restrictions after 12 days of conflict, during which the United States engaged by targeting Iran’s uranium-enrichment facilities, both nations endeavored to assert their respective victories.
ING analysts noted, “While concerns regarding Middle Eastern supply have diminished for now, they have not entirely disappeared, and there remains a stronger demand for immediate supply.” Oil prices are expected to stabilize within the range of $65-70 per barrel as market participants await forthcoming US macroeconomic data and the Federal Reserve’s interest rate decision, according to independent market analyst Tina Teng.
Market participants were anticipating the release of US government data regarding domestic crude and fuel inventories scheduled for Wednesday. Industry data indicated a decline in US crude inventories by 4.23 million barrels for the week ending June 20, according to market sources referencing figures from the American Petroleum Institute on Tuesday.
