Oil prices climbed on Tuesday in the global commodities market, driven by expectations of a U.S. Federal Reserve interest rate cut, optimism about economic recovery in China, and escalating tensions in the Middle East that heighten supply concerns.
Brent crude rose to $72.22 per barrel, while the U.S. benchmark, West Texas Intermediate (WTI), reached $68.38 per barrel. These increases come ahead of a critical meeting of the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+), where members are expected to extend output cuts to counter risks of a global oil glut.
Recent data from China has sparked optimism, suggesting an improvement in the country’s economic activity, bolstered by continued government support. This has raised hopes of increased oil demand from the world’s largest crude importer.
In the U.S., anticipation surrounds the Federal Reserve’s meeting on December 18, with markets pricing in a 75% probability of a 25-basis-point interest rate cut. Lower interest rates typically stimulate economic activity, which could boost oil consumption and drive prices higher.
Meanwhile, the fragile geopolitical landscape in the Middle East has intensified oil market anxieties. Despite a ceasefire agreement with Lebanon, Israel has resumed assaults, targeting Hezbollah missile platforms in southern Lebanon.
The Israeli military confirmed bombing operations on Tuesday, reporting dozens of strikes on missile platforms. The attacks, occurring six days after the ceasefire, resulted in two fatalities, including a government official, and left many injured.
The renewed violence threatens to disrupt oil supply routes, further supporting the rise in crude prices.
As the OPEC+ meeting approaches, analysts expect the alliance to maintain its output cuts to stabilise prices. Combined with the potential for stronger demand from China and a more accommodative monetary policy in the U.S., oil prices are likely to remain volatile in the coming weeks.
The convergence of geopolitical risks and economic drivers underscores the precarious balance of global energy markets, with the Middle East conflict and economic policies shaping the outlook for crude oil.
