The economic and geopolitical factors significantly influence the supply and demand dynamics of commodities. The economy primarily drives demand, while geopolitics tends to control supply. In the previous week, economic concerns weighed on oil prices, resulting in a significant drop. However, the ongoing Israel-Hamas conflict is expected to drive crude oil prices higher this week.
Last week witnessed a substantial decline in oil prices, with US crude and Brent falling by 9% to 11%. This drop was influenced by various factors, including high US Treasury yields and a strengthening US dollar. Additionally, gasoline consumption in the United States reached a 25-year seasonal low.
In contrast, this week presents a different scenario. Even without the impact of the Israel-Hamas conflict, the weakening US dollar could drive a recovery in commodities, including oil. After reaching its highest level since November, the US dollar began to decline, potentially supporting commodities denominated in the currency.
Sunil Kumar Dixit, a technical chartist, anticipates profit-taking in the coming week, which could further weaken the Dollar Index. He suggests that the Dollar Index may find support at 105.78, with potential declines to 105.52 and 104.70. However, if it falls below 105.50, the decline could extend to 103.50, a significant support level.
The Israel-Hamas conflict is expected to have an uncertain impact on oil prices. Given that the conflict is situated in a critical region for oil production, prices may rise as traders assess potential supply disruptions. Iran’s involvement, as a key supporter of Hamas, is of particular interest. Iran is not only the Middle East’s third-largest economy but also the world’s fifth-largest oil producer.
If the conflict escalates and Israel attributes Hamas’s actions to Iranian influence, it could lead to repercussions for Iranian oil production. The United States, which has turned a blind eye to surging Iranian oil exports since late 2022, may reconsider sanctions enforcement. However, the potential consequences for the global oil trade could be complex, as Russia and Venezuela may also be affected.
Russia stands to benefit from any Middle East oil crisis, potentially influencing US decision-making. Sanctions against Iran could create opportunities for Russia’s oil exports and higher prices. Additionally, relaxing sanctions on Venezuela could ease market pressure. The evolving geopolitical situation in the Middle East has the potential to reshape the global oil landscape, making it a key factor to watch in the coming weeks.
