Oil Prices Forecast: Geopolitical Strife, Dollar Weakness Bolster Crude

Key Points

• Middle East tensions escalate oil prices.
• Weaker dollar makes oil more affordable.
• U.S. fuel stocks decline, indicating demand.

Geopolitical Unrest Fuels Oil Rally

Crude oil prices are edging higher on Thursday, driven primarily by the intensification of geopolitical tensions in the Middle East. Israel’s rejection of a ceasefire proposal from Hamas has escalated the already heightened tensions in the region. This development has kept the oil market on high alert since October, with only minimal progress in resolving the Gaza conflict.

Israeli Prime Minister Benjamin Netanyahu’s firm stance against Hamas’ offer, alongside the continued detention of hostages in the Gaza Strip, signals a persistence of regional instability. Additionally, a delegation from Hamas, led by Khalil Al-Hayya, was set to engage in ceasefire discussions in Cairo with representatives from Egypt and Qatar.

At 06:02 GMT, Light Crude Oil Futures are trading $74.12, up $0.26 or +0.35%.

Economic Factors Supporting Oil Prices

Concurrently, economic factors are also influencing oil prices. A significant contributor is the weakening of the U.S. dollar, which has made oil more affordable for holders of other currencies. The dollar index, a measure against six major currencies, fell to 103.99 early Thursday. This devaluation supports higher oil prices, as crude becomes less expensive in non-dollar terms.

U.S. Fuel Stock Drawdown Indicates Strong Demand

Supporting the bullish sentiment in the oil market, recent U.S. data revealed a stronger-than-anticipated drawdown in gasoline and middle distillate stocks. According to the Energy Information Administration, distillate stockpiles dropped by 3.2 million barrels to 127.6 million barrels, surpassing expectations of a 1 million-barrel decrease.

Gasoline stocks also declined significantly, by 3.15 million barrels, defying analysts’ predictions of an increase. These figures suggest a robust demand for oil, further evidenced by a 13% year-on-year surge in U.S. oil exports, reaching a record high of 4.06 million barrels per day in 2023.

Market Forecast: Bullish in the Short Term

Given the current geopolitical landscape and strong demand indicators, the short-term outlook for oil markets appears bullish.

The persistent Middle East tensions, coupled with the weakening dollar and substantial reductions in U.S. fuel stocks, are likely to sustain upward pressure on oil prices. However, traders should remain attentive to ongoing geopolitical developments and any shifts in the economic context that could impact market trends.

Technical Analysis

Light crude oil futures are picking up steam on Thursday after crossing to the strong side of the 50-day moving average at $73.32 and changing the intermediate trend to up.

If the upside momentum continues to build then look for a climb into the longer-term 200-day moving average at $76.33 over the near-term. Look for sellers to re-emerge on the first test of this daily MA.