Analysis Insights
Geopolitical sentiment shifts, oil price rises
The decline in the oil market seemed to continue this week. At the beginning of the week, optimism about geopolitics in the Middle East led to lower prices. That sentiment has now changed after Israel eliminated leaders of Hezbollah and Hamas in Lebanon and Iran. In addition, higher than expected American consumption is driving up the oil price.
After initially declining in the past few days, the oil price rebounded. On Thursday, July 25, oil was traded at $82.37 per barrel. Until Tuesday, July 30, the price decreased. At the low point of the week, the oil price had dropped to $78.63 per barrel. Since then, the price has risen again. On Thursday, August 1, the Brent benchmark was at $81.50.
Until the beginning of this week, there was clearly pressure on the oil price. Two clear reasons can be identified for this. Firstly, the weak economy continues to exert constant pressure on the oil price. Additionally, the influence of geopolitics in the Middle East was significant. Last week, optimism about a ceasefire between Israel and Hamas put pressure on the oil price. When the enthusiasm of both parties was tested, this did not lead to a new increase. Especially since Israel has clearly stated that the country is not eager for a full-scale war in the region.
Geopolitical issues
Meanwhile, that sentiment has reversed again, leading to a clear increase in the oil market. The oil price rose by almost 3% after Israel decided to eliminate Hamas leader Ismail Haniyeh in the Iranian capital Tehran. Iran responded by stating that Israel will pay a high price for the action. Additionally, Israel claims to have eliminated Hezbollah leader Fuad Shukr. According to the Jewish state, Shukr is responsible for a rocket attack on the Golan Heights that killed 12 people. Hezbollah denies any involvement in the attack. Despite the reassuring words of the Jewish state, the market is not confident that the situation will remain calm in the Middle East.
Furthermore, increased demand in the United States is pushing up the oil price. The U.S. Energy Information Administration (EIA) has determined that U.S. commercial oil inventories have decreased by 3.43 million barrels. This is a significantly larger decrease than the market's expectation. A leading Reuters survey shows that economists expected the reserves to decrease by 1.6 million barrels. This marks the fifth consecutive time that the reserves have decreased more than expected. During that period, oil companies consistently overestimated demand, leading to predominantly increasing inventories. This situation has now reversed, mainly due to a seasonal effect. In the summer, oil demand generally increases as Americans often fly to visit family during this period.
Diesel price rises
Meanwhile, the diesel price has risen, before there was a decline. On Thursday, July 25, diesel was traded at €127.24 per 100 liters. On Friday, July 26, the price reached the highest point of the week at €127.95. Subsequently, diesel mirrored the decline in the oil market. On Wednesday, July 30, the price was at its lowest at €125.77, before slightly correcting upwards.
