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Oil declines today with signs of containing the conflict in the Middle East

Market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

 

April 18, 2024 (Investorideas.com Newswire) Crude oil continues to decline across both major benchmarks today, reaching their lowest levels for the month with a decline of about 0.9% for both Brent and WTI.

The continued decline in oil today comes with a sudden calm in the military escalation between Iran and Israel after reaching its peak over the weekend, in addition to more pessimism about the path of interest rates in the US.

It seems that international pressure, surprisingly, led by the United States, has curbed Israeli recklessness aimed at expanding the scope of the war, and this appears to have restored some reassurance to the markets about the safety of global energy supplies.

Israel had constantly threatened to respond to Iran's widespread, yet calibrated, attack and this raised the concerns of the international community about the possibility of pushing the entire region into a war that could not be contained, which would only have come to keep the Prime Minister, Benjamin Netanyahu, at the head of the war cabinet.

While this state of calm may not remain for long if Netanyahu is exposed to more pressure, whether from the Gaza front, from the far-right coalition, or even from street pressure. This may push him to reignite the fuse of the regional war - as he did in targeting the Iranian consulate - to maintain his position in any way. I think this may remain a source of concern for the markets, with sudden movements that could change the scene within moments.

The economic scene does not favor oil market gains either, with sentiment deteriorating around the possibility of an interest rate cut in the second half. It seems that the new reality has found its way to the markets through the accumulation of inventories for the fourth week in a row and more than expected.

Last week, we witnessed a dwindling hope for the possibility of a 25-basis point interest rate cut next June by the Federal Reserve, while this possibility no longer amounts to only 18% now after exceeding 60% last month, according to the CME FedWatch Tool.

To make matters worse, the narrative of a return to raising interest rates this year is slowly resurfacing as inflation returns to acceleration and economic activity is very hot.

Until now, this proposition is still unlikely, but the FedWatch Tool's probabilistic models estimate the probability of an interest rate hike in June at about 1% today after it did not exist at all. While this possibility may be fueled by continued accelerating inflation growth, this could be very disappointing for the energy markets.

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