Fueling the Fire: Middle East Tensions Drive Oil Prices Up, But Demand Remains a Limiting Factor
Oil prices on the rise
Oil prices were in the green on Monday over greater uncertainty in the Middle East after the fall of Syria’s President Bashar-al-Assad’s regime. Syrian rebels announced on state television that they have ousted President al-Assad, eliminating a 50-year family dynasty. Tension escalated in the region as the rebels mounted a lightning offensive that raised fears of further uncertainty, putting oil supply from the Middle East at risk. At the time of writing, the price of West Texas Intermediate crude oil was $67.55 per barrel, up 0.5%. Brent crude oil on the Intercontinental Exchange was $71.41 per barrel, up 0.4% from the previous close.
New political uncertainty
The development in Syria has added a new layer of political uncertainty in the Middle East, providing some support to the market,” Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting told Reuters.
Poor demand caps rise in prices
Even as tensions in the Middle East continue to rise, poor demand worldwide has weighed on sentiments. The Organization of the Petroleum Exporting Countries and allies last week delayed their planned output increase by three months till the end of March. The cartel extended their steep voluntary production cuts of 2.2 million barrels per day till the end of March. Additionally, the group also extended its overall output cuts amounting to 3.65 million barrels a day till the end of 2026. This highlighted that global demand for crude oil remained poor, and OPEC has to keep their massive output cuts in place to support prices.
Oversupply concerns
Even as demand remains low, particularly in China, global supply is expected to rise considerably next year. According to the International Energy Agency, oil supply from non-OPEC countries, led by the US, is expected to rise by 1.5 million barrels per day in 2025. This is likely to comfortably outstrip demand growth, which is expected below the 1-million-barrel-per-day mark. Additionally, data from Baker Hughes, one of the world’s largest oilfields companies, showed that the number of rigs deployed for oil and gas in the US hit its highest since mid-September last week.
US production set to rise
Production of crude oil is already at record levels in the US. With the victory of the US President-elect Donald Trump in this year’s election, oil production is expected to rise even further. Trump is expected to approve drilling for oil and gas in federally-owned lands and off the coast of the US. He is also set to roll back several climate regulations passed under incumbent President Joe Biden. This is expected to favour the oil and gas sector and Commerzbank AG believes that output in the world’s biggest oil producer is expected to rise in the medium to long term. This spells further doom for crude oil prices in the coming months.
How this will affect you
With oil prices on the rise due to Middle East tensions, you can expect to see an increase in fuel costs, which can impact your daily expenses and the cost of goods and services. Additionally, weak global demand may lead to fluctuations in the stock market and affect investments tied to oil prices.
How this will affect the world
The rise in oil prices can have global repercussions, impacting economies around the world. Higher oil prices can lead to inflation and slower economic growth, affecting industries that rely heavily on oil. Additionally, geopolitical tensions in the Middle East can create instability in the region and may have far-reaching consequences for global security.
Conclusion
As tensions in the Middle East drive oil prices up, the impact of weak demand remains a limiting factor. While the political uncertainty in the region supports the market, oversupply concerns and rising US production may offset these gains. It is essential to monitor these developments closely and be prepared for potential fluctuations in oil prices in the near future.
