Crude oil prices surge: Middle East conflict and regulatory shifts drive market gains

In the commodities market, Brent futures closed higher at $90.89 per barrel, marking a notable increase of $4.89 or 5.7%. Meanwhile, US West Texas Intermediate (WTI) crude experienced a substantial gain of $4.78, or 5.8%, reaching $87.69 per barrel. These movements represent the most significant daily percentage gains in both benchmarks since April 23. Additionally, Brent oil recorded a weekly surge of 7.5%, its most substantial increase since February, while WTI climbed 5.9% for the week, as reported by the news agency Reuters.

In the domestic context, on the Multi Commodity Exchange (MCX), crude oil futures with an October 19 expiry rose by 5.45%, settling at ₹7,272 per barrel. During the trading session, the price exhibited fluctuations within the range of ₹6,962 to ₹7,278 per barrel, following the previous close at ₹6,896 per barrel.

The recent surge in crude oil prices can be attributed to several factors, including geopolitical and regulatory developments:

  1. Geopolitical Tensions in the Middle East: While the conflict in the Middle East has not significantly impacted global oil and gas supplies, the situation remains a focal point for investors and market observers. There is ongoing assessment of the potential escalation of the conflict and its implications for oil supplies from neighboring countries in the world’s top oil-producing region.
  2. US Sanctions on Russian Oil: Notably, the US government has imposed sanctions on the owners of tankers transporting Russian oil that is priced above the G7’s price cap of $60 per barrel. This move aims to close existing loopholes in the sanctions mechanism designed to penalize Russia for its invasion of Ukraine. Given Russia’s status as the world’s second-largest oil producer and a major exporter, increased scrutiny of its shipments by the United States could impact the global oil supply.
  3. OPEC’s Demand Forecast: The Organization of the Petroleum Exporting Countries (OPEC) has maintained its forecast for growth in global oil demand, anticipating an increase of 2.25 million barrels per day (bpd) in 2024. This is in comparison to the growth of 2.44 million bpd expected for 2023. OPEC points to signs of resilience in the global economy throughout the current year and anticipates further growth in demand, notably in China, the world’s largest oil importer.
  4. IEA’s Oil Demand Outlook: The International Energy Agency (IEA) has revised its oil demand growth forecast for 2024, suggesting that challenging global economic conditions and advancements in energy efficiency will likely moderate consumption. The agency now anticipates 2024 demand growth at 880,000 bpd, a downward adjustment from its prior projection of 1 million bpd.