A Roller Coaster Week for Crude Prices
Unending oscillations in the price of crude last week palpably demonstrated the economic impact of recent geopolitical tensions. The roller coaster fluctuation in prices, which ended on an upsurge of nearly 3 percent on Friday, was fueled primarily by fears of global crude supply disruption emanating from the escalating Israel/Hamas conflict. Meanwhile, the previous session saw prices plummet on news of the rapid expansion of the U.S. economy in Q3, stoking concerns that the Federal Reserve may persist with high-interest rates.
Friday showcased the precariousness of the situation with Brent settling up $2.55, translating to a 2.9 percent gain at $90.48 per barrel, and West Texas Intermediate marking up $2.33 or a 2.8 percent rise to $85.54. Nevertheless, the general trend for the week showcased Brent and WTI marking 2 percent and 4 percent losses respectively.
Market Influences and Reactions
Phil Flynn, a top market analyst at Price Future Group Inc., encapsulated the market’s delicate dance succinctly. He remarked, “We are at the mercy of the next headline… and I think that’s kind of what we’ve been seeing today with the price swings.” The mercurial nature of the market was on full display as traders seemed to lack consistency in response to specific concerns.
One moment, crude oil prices were surging over $2 after the U.S. targeted military installations in Syria; the next, prices were nosediving due to reports of potential Israel-Hamas mediated talks. Yet they snap-back up on renewed supply fears.
A Clarity Quagmire
Despite Middle East developments not directly influencing oil supplies, and assertions from experts that any impact will be ephemeral, accurate predictions on the trajectory of these crises are elusive. An analyst from RBC Capital Markets highlighted the crux of the confusion: “[It] remains incredibly difficult even for the most knowledgeable regional watchers to make high conviction calls about the trajectory of the current crisis.”
Broader Market Trends and Outlook
Bloomberg offered an additional angle saying, “The Middle East war premium in futures is partially masking a recent slump in prices of some physical barrels, suggesting demand may be weakening…” They noted that fluctuations in futures and options markets have become a staple on Fridays as traders assess positioning ahead of the weekends in anticipation of potential price spikes with the market re-opening.
As the week drew to a close, a poignant observation by Michael Kern, an analyst at Oilprice.com highlighted the overall market sentiment. Despite U.S. military airstrikes in Syria lifting the Brent above $90 per barrel, the market was bracing for an Iranian countermove and possibly escalated tensions in the broader region. However, as Kern pointed out, “Even with this, oil prices are set for the first week-on-week decline since early October.”
