WTI falls on uncertain demand, MidEast tensions

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West Texas Intermediate (WTI) futures dropped slightly to the crucial support of $85.00 in early trading in European markets on Wednesday. The crude oil price comes under pressure on weak demand outlook amid expectations that the Federal Reserve will keep interest rates higher for a longer period.

Stubbornly higher consumer price inflation and strong labour market data for March have dented the Fed’s confidence in price pressures declining to the desired rate of 2%.

On Tuesday, Reuters reported Fed Chair Jerome Powell as saying that, “the recent data have clearly not given us greater confidence, and instead indicate that it’s likely to take longer than expected to achieve that confidence.”

Apart from that, expectations for higher crude oil inventories for the week ending April 12 have weighed on the oil price. The United States Energy Information Administration (EIA) is forecasted to have shown a rise in in oil stockpiles by 1.6 million barrels.

In the Middle East, fears of oil supply tightening further have deepened as Israel prepares to respond to Iran’s attack on its territory.

After aiming hundreds of drones and missiles on Israel, Tehran said, “the matter deemed to be closed.” However, should the Israeli regime make another mistake, Iran’s response will be considerably more severe, Wall Street Journal reported.

The spread of a war situation beyond Gaza will disrupt the oil supply chain. Iran is the third largest crude oil exporting member of OPEC and its involvement in war with Israel will significantly fluctuate global prices.

The long-term outlook of the oil price remains strong if geopolitical tensions worsen further.

Meanwhile, fears of fresh sanctions from the U.S. on Iran has further escalated prospects of tight oil supply.

Treasury Secretary Janet Yellen said that the U.S. administration intends to levy new sanctions on Iran against its attack on Israel. Fresh sanctions on Iran would impact their capacity of exporting oil.

(Source: OANDA)