Crude oil prices rose on Thursday as heightened geopolitical tensions continued to underpin the market, experts said.
Oil prices have risen about 4% this week so far after falling 7% last week due to concerns over poor demand.
At the time of writing, the price of West Texas Intermediate crude oil was at $71.19 per barrel, up 0.6%, while Brent crude was 0.5% higher at $75.36 per barrel.
Middle East tensions drive oil prices
Heightened tensions between Israel and Iran-backed Hezbollah as well as reports of North Korea assisting Russia in Ukraine are fueling the rally in oil.
On Wednesday, the US said for the first time it had seen evidence North Korea has sent 3,000 troops to Russia for possible deployment in Ukraine, according to a Reuters report.
The move could lead to a serious escalation in Russia’s war against Ukraine.
In the Middle East, Israel and Hezbollah continued their fighting, raising supply risks of oil from the region.
The Middle East is home to more than half of the world’s oil reserves.
On Thursday, reports claimed that Israeli strikes aimed at Hezbollah, hit the Syrian capital of Damascus.
The ongoing escalation in the region continues to provide risk premiums to oil prices.
James Hyerczyk, author at Fxempire.com said in a note:
This geopolitical uncertainty, coupled with anxiety over potential US policy shifts ahead of the presidential election, has created volatility.
Rising US inventories limit upside
Oil inventories in the US rose sharply by 5.5 million barrels last week.
The US is the world’s largest producer of crude oil.
The hefty build in crude oil stockpiles weighed on market sentiments as oil prices briefly fell earlier on Thursday.
Crude oil production also remained steady at record levels in the US last week.
Production averaged 13.5 million barrels per day in the country in the week ended Friday, according to official data by the Energy Information Administration.
Crude oil imports also rose by nearly 1 million barrels per day in the US last week, indicating the local demand for fuel remains strong ahead of the US Presidential elections in early November.
“Despite this bearish data, persistent fears of Middle East supply shocks helped stabilise prices, preventing a significant pullback,” Fxempire’s Hyerczyk said.
Saudi Arabia plans increase in production
Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries and allies, is expected to increase its oil production from December.
The increase in production is part of a plan of the OPEC+ alliance to gradually unwind its voluntary output cuts of oil, amounting to 2.2 million barrels per day.
The move is likely to result in increased market share for Saudi Arabia and other Gulf countries.
According to a Reuters poll, Saudi Arabia’s economic growth is projected to accelerate to 4.4% in 2025, supported by higher oil output, up from an expected 1.3% this year.
Additionally, the UAE’s economy is likely to grow by 4.9% in 2025, capitalising on increased production of oil.
The supply balance in the oil market seems comfortable for next year. If geopolitical tensions ease, oil prices could fall sharply due to adequate supply.
Short-term forecast for oil prices
As for the WTI crude oil, prices are likely to remain bullish in the short-term due to heightened tensions in the Middle East.
Prices are likely to test resistance near the 200-day moving average of $73.01 per barrel, according to Fxempire.
If the level of $73 is breached, WTI prices could further rise to $75 a barrel.
Hyerczyk said:
In the near term, the outlook remains cautiously bullish, with geopolitical risks playing a pivotal role in price direction.
For Brent prices, the immediate resistance is at $76.28 per barrel. If prices can breach this level, it may continue its bullish run.
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