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Mideast crisis to affect oil prices in the short term

Dollar likely to stay the course unless Fed decides on a 50bos cut, expert says

The latest political crisis in the Middle East is likely to affect oil prices in the short term, an expert said.

“We’ve already had a downtrending in oil trajectory as we had increasing potential increase in the supply production from OPEC. As we hit a critical technical analysis point, which is at $65 per barrel, which is a level that oil has been rebounding from ever since 2021. When we hit that, we had an escalation with respect to the Middle East tensions and that also drove up the oil prices as we have high risk for supply disruption across the Middle East. So this increased the upside hedging risk for investors against the prices of oil which pushed oil prices back up, and you can see also in the futures market and in the call options market we can see as we have this increasing escalation in the region,” Razan Hilal, Market Analyst, CMT at forex.com, told Khaleej Times on the sidelines of the recently-concluded Forex Expo in Dubai.

The Gulf economies, with substantial oil reserves, stand to make immediate gains from the current spike in prices. “[The oil producers] have been willing to increase their production that has been cut since January 2024. Yes, with the weakness of the prices, especially with the weakness from China and the oil demand and with the overall transition towards renewable energies we had a notable decline in oil prices and it was not to the benefit of the governments who actually benefit off the oil prices and their economies. Yet with respect to the Middle East tensions now, looking on the long term and after the US elections we also have both candidates of the US going towards slashing energy prices to decrease inflation levels and the Middle East tension phase might be temporary up until the other events will unfold. So it’s currently more of hedging towards upside risk in the oil market at the table now,” Hilal said.

The US Federal Reserve is tilting towards a 25 basis point cut, Hilal predicted. “With the nonfarm payroll data, we see resilience and we have positive notes beating the expectations for the payroll data, putting the labour market on a strong ground. We also have the risk of oil prices probably rebounding, so to keep control over inflation rates the Fed is expected to continue a 25 basis point reduction. The dollar is also on strong ground. These are positive for the dollar and only if there is a drastic 50 basis point rate cut, that might be affect the dollar,” Hilal said.

Hilal does not see any overheating in Dubai’s current real estate market scenario. “Every year investors look at the real estate market that it has been said often that it is overheated but it’s still reaching new highs. The main thing about Dubai is the amount of safety that’s around here and the business friendly environment is attracting high wealthy investors to invest in the real estate sector. We might see headwinds from a market dynamic perspective, but the stability and security in Dubai will keep foreign direct investment inflows intact,” she said.