Oil Prices Edge Higher Amid Tensions and Interest Rate Cuts

Oil prices rose in volatile trading on Monday, driven by heightened Middle East tensions and expectations of demand improvement from lower interest rates.

As of 08:50 ET (12:50 GMT), Brent oil futures climbed 0.1% to $73.72 a barrel, and West Texas Intermediate crude also rose 0.1% to $71.07 a barrel.

Fed Rate Cut Boosts Oil, More Economic Cues Awaited

Crude prices had slightly dipped after a two-week recovery from close to three-year lows, influenced by the Federal Reserve’s significant interest rate cuts. This decision has bolstered hopes that lower rates will stimulate economic growth, potentially increasing crude demand.

Both oil benchmarks saw more than a 4% rise last week. This week, more insights on the Fed’s position will emerge as several officials, particularly Chair Jerome Powell, are scheduled to speak. The Fed’s preferred inflation measure, the PCE price index, will also be released on Friday.

In addition to the Fed, the Swiss National Bank and the Swedish central bank are expected to meet this week, with anticipated interest rate cuts from both institutions.

Middle East Tensions Remain in Play

Traders are attaching risk premiums to oil prices, as tensions in the Middle East show few signs of abating. Israel continues its strikes in Gaza and Lebanon, maintaining concerns over the possibility of an all-out war in the region. Hezbollah has stated its intent to retaliate against Israel for the alleged detonation of devices used by the group.

The ongoing conflict and threats of war raise alarm that a broader conflict could disrupt oil supplies from this critical region, tightening global markets.

Sentiment "Decisively Bearish"

Despite the rise in prices, analysts at Bank of America indicated that sentiment among energy investors has turned notably bearish. This shift follows plans by the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+) to unwind additional voluntary output cuts. OPEC+ intends to gradually reinstate 2.2 million barrels per day from December 2024 to November 2025, though this timeline has faced previous delays.

Speculative net positioning in petroleum futures and options has recently dipped to the lowest since at least 2011, indicating that investors are bracing for a declining energy price environment.

*(Ambar Warrick contributed to this article.)