Oil News: Middle East Tensions Drive Prices Higher as Demand Fears Persist

Oil Prices Rise on Middle East Tensions, Demand Concerns Remain

Light crude oil futures are edging higher on Monday, bouncing back from last week’s lows. WTI crude is rebounding from support between $68.22 and $67.23, testing key technical levels. Immediate resistance lies at the Fibonacci retracement level of $69.79, and a break above this could lead to a rally toward the 50-day moving average at $71.73, with further resistance near $73.05. This technical setup is being closely watched as geopolitical risks rise in the Middle East.

At 09:23 GMT, Light Crude Oil futures are trading $68.47, up $0.29 or +0.43%.

Middle East Conflict Escalation Pushes Prices Up

Oil prices are seeing upward pressure for the second straight session as concerns grow over potential supply disruptions in the Middle East. This comes after Israel intensified its military operations against Palestinian militant group Hamas and Iranian-backed Hezbollah. The heightened tensions have reignited fears that Iranian oil supplies, critical to global markets, could be directly affected.

This geopolitical risk follows last week’s price dip, where Brent crude fell 3% and WTI dropped by 5% amid ongoing demand concerns from China. Despite China’s efforts to stimulate its economy, data released Monday showed a fifth consecutive month of shrinking manufacturing activity, signaling weak demand from the world’s top oil importer.

Supply Risks from Middle East Could Override Demand Worries

Investors are weighing two primary risks: oversupply and demand weakness versus potential supply disruptions. While the supply glut, particularly with OPEC+’s voluntary cuts ending December 1, is a concern, many fear that broader conflict in the Middle East could severely disrupt global oil supply chains. Israel’s strikes on Hezbollah and the Houthi group, both backed by Iran, have raised alarms about further regional escalation.

Iran’s involvement in the conflict would likely impact its oil production and exports, a crucial factor for market participants. As Priyanka Sachdeva, senior market analyst at Phillip Nova, noted, supply risks could overshadow excess production concerns, at least in the short term.

China’s Demand Uncertainty and Fed Outlook Weigh on Markets

Despite Middle East supply risks, weak demand from China remains a bearish factor for the oil market. China’s efforts to stimulate its economy have yet to show a strong impact on fuel demand, particularly as the country shifts toward electrification and decarbonization in its transportation sector. Data reflecting a slowdown in both manufacturing and services industries reinforces this concern.

Later today, traders will closely monitor remarks from Federal Reserve Chair Jerome Powell, with seven additional Fed policymakers scheduled to speak this week. Market participants are looking for clues on the pace of monetary easing, which could potentially support broader economic recovery and, in turn, boost oil demand.

Market Forecast: Bearish with Potential Geopolitical Spikes

In the short term, oil prices face bearish pressure due to sluggish demand in China and excess supply concerns as OPEC+ cuts expire in December. WTI may test 2021 lows in the $61-$62 range if demand weakness continues. However, any further escalation in the Middle East could trigger sudden price spikes. Traders should remain cautious of geopolitical headlines, which could drive volatility in oil markets.