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Oil prices made a comeback on Tuesday, bouncing back from significant losses as traders closely monitored the ongoing Israel-Hamas conflict and awaited key business activity reports.
Crude prices experienced a 3% drop on Monday, following diplomatic efforts aimed at de-escalating tensions in Israel and Gaza, along with Hamas’s agreement to release some hostages. These developments prompted traders to reduce their bets on the conflict spreading to the wider Middle East, potentially disrupting oil supplies.
However, this week witnessed continued hostilities between Israel and Hamas, including missile exchanges, and there was heightened attention on a potential ground offensive by Israel in the Gaza Strip.
As of 21:12 ET (01:12 GMT), Brent oil futures saw a 0.5% increase, reaching $90.21 per barrel, while West Texas Intermediate crude futures rose by 0.4% to $85.86 per barrel.
Oil prices had seen two strong yet volatile weeks of gains at the onset of the Israel-Gaza conflict. However, they declined this week due to profit-taking and the absence of a major escalation in the conflict.
The focus for the week now shifts to crucial business activity reports from the U.S. and other major economies. Additionally, the European Central Bank meeting will provide insights into the global economy and future oil demand.
PMIs Take Center Stage with Fed Meeting Ahead Purchasing managers’ index (PMI) data from Australia and Japan indicated weak business activity in both economies for October.
Market attention now turns to the upcoming flash PMI data from the U.S., expected later in the day, to assess the state of business activity in the world’s largest fuel consumer. Both manufacturing and services PMIs are anticipated to show contractions in October, influenced by high interest rates and persistent inflation pressures on local businesses. Similar trends are expected in PMI readings from the euro zone and the UK, possibly signaling weaker economic activity and softer fuel demand in the coming months.
These readings are released just ahead of a Federal Reserve meeting next week, where the central bank is widely anticipated to maintain interest rates at their current levels. However, it is also expected to signal a commitment to keeping rates elevated for an extended period.
Higher interest rates had been a source of concern for oil markets over the past year, with fears that increased rates could cool economic activity, subsequently impacting oil demand. Nevertheless, this concern has been partially offset by signs of significantly tighter oil supplies this year, driven by substantial supply reductions by Saudi Arabia and Russia. Additionally, U.S. inventories have consistently decreased throughout the year, and the Biden administration recently outlined plans to replenish the Strategic Petroleum Reserve.
