Oil Prices are Likely to Jump Higher

Brent crude oil is experiencing a marginal growth of 0.5%, bringing prices to $85.50 per barrel. This modest increase comes as prices continue to move sideways within a narrow range, fluctuating 1.7% in either direction since June 19. Such dynamics suggest that oil prices are poised for a significant movement.

Investor sentiment is divided, with some anticipating a continuation towards $90.00 per barrel, while others foresee a retreat to $80.00 per barrel. Over the past two months, prices have been constrained between these levels, reflecting a tug of war in the market. In May, prices fell below $80.00 per barrel due to fears of ongoing macroeconomic cooling and OPEC+'s unexpected decision to raise oil production starting in October. However, the situation shifted in early June when OPEC+ clarified that the production increase would be minimal.

Standard Chartered's analysis supports this view, predicting a Q3 2024 market deficit of 2.0 million barrels, with a smaller deficit expected in Q4 and no surplus anticipated. The delay in macroeconomic cooling is further evidenced by stronger-than-expected PMI data from the United States. Manufacturing PMI rose to 51.7 points, and Services PMI surged to 55.1 points, both surpassing consensus estimates and indicating continued economic expansion.

Despite a surprising rise in U.S. oil inventories by 3.59 million barrels last week, compared to an expected decline of 2.60 million, prices still increased by 0.5% on the same day. This resilience is partly due to large investor actions. The United States Oil Fund LP (USO) reported net inflows of $7.7 million last week and a substantial $31.5 million over three days this week, indicating bullish investor sentiment.

Geopolitical risks also support higher oil prices. The potential for a ground operation by Israel in Lebanon to counter the Hezbollah militia group could escalate tensions, involving Iran and potentially expanding into a regional conflict. This scenario adds upward pressure on oil prices.

Technically, oil prices might be inclined to decline, but the influence of political factors suggests an upward momentum towards $90.00 per barrel of Brent crude.