Oil Traders are Waiting for Iranian Strike on Israel

Oil prices are facing downward pressure this week, with Brent crude dropping by 0.4% to $90.28 per barrel. On Wednesday, prices dipped even further to $89.00 per barrel amidst significant geopolitical tensions, particularly concerning potential missile strikes from Iran on Israeli military and government facilities. Despite these concerns, investors are skeptical about the likelihood of such an escalation and are withdrawing capital from crude assets. Last week, $103.8 million was pulled out of the United States Oil Fund (USO), followed by another $49.1 million this week, indicating a broader market uncertainty prompting this move.

Market unease has been exacerbated by March inflation figures, which surpassed expectations. U.S. 10-year Treasuries yields surged to 4.56%, the highest since November 13, 2023, while bets on interest rate cuts by the Federal Reserve (Fed) in June plummeted to 16.4% from 56.1%. Institutional investors are increasingly skeptical about the prospects of a soft landing for the American economy in 2024, which is contributing to the negative sentiment surrounding oil prices.

Adding to the bearish sentiment, the Energy Information Administration (EIA) reported a substantial increase in oil inventories, rising by 5.8 million barrels last week compared to a forecasted increase of only 900,000 barrels. This marks the third consecutive week of inventory growth, prompting the EIA to revise its oil production forecast upward by 280,000 bpd to 13.21 million bpd.

While Brent crude prices are currently hovering around $92.00 per barrel, a significant breakthrough towards $100 per barrel seems unlikely without a serious escalation of the Middle East conflict, which is not the prevailing scenario at present. Instead, prices are more likely to roll back to the support level at $81.00-83.00 per barrel, particularly in the second half of April.