Oil prices are on the rise as escalating tensions in the Middle East raise concerns over global supply disruptions. The price of Brent crude, the international benchmark, climbed 0.5% to $70.89 per barrel, up from $70.54 in the previous trading session. Similarly, West Texas Intermediate (WTI), the US benchmark, gained 0.5%, reaching $67.33 per barrel from its prior close of $67.
The latest price increase follows heightened geopolitical tensions, including Israel’s military operations in Gaza and U.S. airstrikes on Houthi rebel targets in Yemen.
Escalating Conflict in the Middle East
Late Wednesday, Yemen’s Houthi group reported that 16 of its members were killed in U.S. airstrikes across several provinces. These attacks are part of the U.S. response to the Houthis’ ongoing assaults on commercial ships in the Red Sea, Arabian Sea, and Gulf of Aden.
Since late 2023, the Houthis have been targeting Israel-linked vessels, claiming it as a show of solidarity with Gaza. Although they briefly paused attacks following a ceasefire between Israel and Hamas, they have threatened to resume operations after Israel blocked humanitarian aid shipments to Gaza on March 2.
The conflict in the Red Sea is now a major security threat to global shipping routes, potentially tightening oil supplies and pushing prices higher.
US Crude Production Declines
Adding to supply concerns, data from the U.S. Energy Information Administration (EIA) showed a slight drop in American crude oil production.
- U.S. oil output fell by 2,000 barrels per day (bpd), reaching 13.57 million bpd for the week ending March 14.
- Gasoline inventories also declined by 500,000 barrels, bringing total stockpiles to 240.6 million barrels.
Lower U.S. production has intensified concerns over supply constraints, contributing to the recent price gains.
Federal Reserve Policy and Oil Market Impact
Oil prices are also influenced by decisions from the U.S. Federal Reserve. On Wednesday, the Fed kept interest rates steady at 4.25% – 4.50%, citing stable employment levels and moderate inflation. However, the central bank maintained its forecast for two rate cuts later in the year.
A weaker U.S. dollar typically makes oil cheaper for buyers using other currencies, potentially increasing demand. Additionally, interest rate cuts can stimulate economic growth, leading to higher fuel consumption and pushing oil prices up.
China’s Demand Remains a Concern
Despite the upward momentum in oil prices, analysts remain cautious due to weak demand from China, the world’s largest oil importer.
If China’s crude imports continue to slow, it could limit oil price increases, even in the face of Middle East tensions. Additionally, potential production increases from OPEC and U.S. shale producers could put downward pressure on prices.
For now, the global oil market remains in a delicate balance, with geopolitical risks and economic factors pulling prices in different directions.
