Crude oil prices surged on Thursday, June 27, driven by escalating geopolitical tensions in the Middle East and Europe, along with concerns over global crude supply disruptions. Despite a surprise build in US crude and gasoline inventories, the geopolitical risk premium outweighed the higher US supply, pushing prices higher.
Brent crude oil futures rose by 92 cents, or 1.08%, to $86.17 per barrel. Meanwhile, US West Texas Intermediate (WTI) crude futures increased by 86 cents, or 1.06%, to $81.76 per barrel. On Wednesday, both global benchmarks had settled slightly higher. Domestically, crude oil futures last traded 0.04% higher at ₹6,807 per barrel on the Multi Commodity Exchange (MCX).
Geopolitical Tensions Fueling Price Increase
Several factors have contributed to the recent spike in crude oil prices:
1. Middle East Conflicts: Cross-border tensions between Israel and Lebanon’s Hezbollah have been escalating, raising fears that a broader conflict could draw in other countries, including major oil producer Iran. The French foreign ministry has expressed extreme concern about the situation in Lebanon and has called for restraint.
2. Gaza Operations: Israel has intensified its operations in Gaza City, urging Palestinians to move south. Israeli forces also bombed the southern city of Rafah as part of their campaign against Hamas militants.
3. Yemen’s Houthi Militia: The Houthi militia, which controls the most populous parts of Yemen, has been staging attacks on ships in the region’s waters in solidarity with Palestinians fighting Israel in Gaza.
4. European Concerns: In Europe, Russia is contemplating a possible downgrade of relations with the West due to increased involvement of the US and its allies in the Ukraine war. However, no decision has been made yet.
US Inventory Build
The US Energy Information Administration (EIA) reported a 3.6 million barrel increase in the country’s crude oil stocks last week. Additionally, US gasoline stocks rose by 2.7 million barrels. In Europe, independently held gasoline stocks in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub rose by over 9% in the week leading up to Thursday, according to data from Dutch consultancy Insights Global. This suggests limited scope for transatlantic US gasoline demand.
Price Forecast and Market Sentiment
WTI crude oil futures pared early gains and closed marginally higher on Wednesday as the unexpected inventory build raised concerns about weakening demand in the world’s top oil consumer. However, analysts believe that the downside is limited due to the escalating conflict in the Middle East.
Kaynat Chainwala, AVP-Commodity Research at Kotak Securities, noted, “Fears that the Gaza war could escalate and disrupt Middle Eastern supplies have limited the decline. Cross-border tensions between Israel and Lebanon’s Hezbollah have risen in recent weeks, raising worries of a full-fledged Israel-Hezbollah war that might involve other regional nations, notably major oil producer Iran.”
Rahul Kalantri, VP Commodities at Mehta Equities Ltd, added, “Crude stockpiles at the Cushing, Oklahoma, delivery hub decreased by 226,000 barrels this week. We expect crude oil prices to remain volatile. Crude oil has support at $79.40-$78.70 and resistance at $81.00-$81.65. In INR, crude oil has support at ₹6,700- ₹6,630 and resistance at ₹6,875- ₹6,940.”
As geopolitical tensions continue to rise and US inventories show unexpected builds, the crude oil market is expected to remain volatile. The interplay between supply concerns and geopolitical risks will likely keep prices fluctuating in the near term.
