Oil rises 2% on MidEast geopolitical conflict even as US macro data allays recession fears; Brent at $81/bbl

Global crude oil prices rose more than $1 on Thursday, August 15, after positive US economic data allayed fears of an imminent recession in the world's biggest economy. However, concerns over slower global demand curbed the rally. The ongoing geopolitical conflict in the Middle East also supported oil prices.

Brent crude futures were last up $1.51, or 1.89 per cent, at $81.27 a barrel, while US West Texas Intermediate crude futures rose by $1.44, or 1.87 per cent, to $78.42. Both main benchmarks fell over one per cent on Wednesday over high US crude inventories. Crude oil futures last traded 1.7 per cent lower at ₹6,484 per barrel on the multi-commodity exchange (MCX).

Also Read: OPEC+ sticks to output policy of 5.86 million barrel pullback per day, hints at unwinding cuts from October

What's driving crude oil prices?

-Data showed that US retail sales rose more than expected in July, while another report showed a smaller-than-expected increase in Americans filing for unemployment benefits. Analysts said that the US retail sales data and the US unemployment claims number provided a plethora of positive news.

-US government data showing US consumer prices rose moderately in July 2024 reinforced expectations that the US Federal Reserve will cut interest rates next month, lending support to the market. Experts say recession fears will be reignited in case of a rate pause in September.

-Oil prices were additionally supported by worries over Iran's potential response to the killing of the leader of the Palestinian militant group Hamas last month. Analysts said that geopolitics and the risk of an expanding conflict in the Middle East are propping up prices as the threats of retaliation continue to grow louder.

-A new round of Gaza ceasefire talks was underway in the Qatari capital, Doha, on Thursday afternoon, as Palestinian health authorities said the death toll from the war surpassed 40,000 and pressure to end the war in the Palestinian enclave mounted.

-The Russia-Ukraine conflict also kept prices elevated. Russia said on Thursday it would bolster border defences, improve command and control and send in additional forces, days after Ukraine made the biggest attack on its sovereign territory since World War Two.

Also Read: US Federal Reserve ‘must go big with 50 bps interest rate cut in September’ or risk recession: Experts

-US crude oil stockpiles rose by 1.4 million barrels in the week of August 9, compared with estimates for a 2.2 million barrel draw, which was built for the first time since late June. 

-China's factory output growth slowed in July, while refinery output fell for a fourth month, underscoring the country's spotty economic recovery and limiting the upside for crude markets on Thursday.

Where are prices headed?

Domestic brokerage firm Motilal Oswal Financial Services said that for the remainder of 2024, oil prices are expected to rise to around $85-$87 per barrel, driven by a combination of geopolitical concerns, ongoing supply reductions, and the anticipated announcement of two rate cuts by the US Federal Reserve. 

Also Read: Oil Prices likely to rise to $85-87 in 2024 amid geopolitical tensions and supply concerns: Motilal Oswal

‘’The situation in China could be a make or break situation and will be a critical factor to monitor, as it could dampen the upward momentum in the oil market, or any recovery will give an additional boost to the positive sentiments,'' said the brokerage.