Crude oil prices end winning run with first weekly fall in nearly a month. Can liquid gold slide further?
Crude oil prices posted their first weekly decline in three weeks as improving flows through the Strait of Hormuz eased supply concerns. Brent fell over 5% for the week, while WTI declined more than 4%. However, prolonged shipping disruptions could push prices higher, with JPMorgan and Goldman Sachs flagging upside risks.
Oil prices ended the week in a downward trend, marking their first decline in nearly a month, as traders considered the implications of the U.S. Federal Reserve's inflation-fighting policies and the possibility of an agreement to reopen shipping in the Strait of Hormuz. Brent crude futures settled at $89.31 a barrel, while West Texas Intermediate crude futures fell to $83.40 a barrel. Over the week, Brent's value dropped by more than 5%, while WTI declined by over 4%.
The decrease in oil prices was reportedly influenced by the volume of oil able to pass through the Strait of Hormuz and the pace of these flows increasing. This has enabled Asian refineries to consume more crude. The U.S. recently imposed stringent sanctions on Iran, which Tehran denounced as inhumane and ineffective. Shipping activity through the Strait remains unpredictable, with Reuters reporting that only seven commodity vessels passed through on Thursday, down from 17 the previous day and below the 10-day average of 15.
The Bab el-Mandeb, another significant shipping chokepoint, saw 17 commodity vessels, with six entering and 11 exiting.
Analysts suggest that the extent of the disruption in shipping will be a critical factor for crude prices. JPMorgan estimates that each additional month of disruption could add $7 to $8 a barrel to Brent prices. If the disruption persists for three months, the bank foresees Brent averaging around $114 a barrel. Goldman Sachs warns that Brent could rise to $120 a barrel if the shipping issues in the Strait of Hormuz persist.
However, the bank anticipates that tensions in the Middle East will eventually ease and forecasts Brent to average $80 a barrel in the fourth quarter and $75 a barrel next year. Ponmudi R, CEO of Enrich Money, emphasized that crude oil prices will remain closely linked to developments at the Strait of Hormuz. A sustained improvement in shipping flows could alleviate the geopolitical premium in crude, benefiting emerging-market equities, while renewed disruptions could quickly reverse this trend.
U.S. monetary policy has emerged as the primary global catalyst since Fed Chair Kevin Warsh's cautious remarks at the Jackson Hole event. Market focus will now shift to the August jobs report, due on September 4, and the next inflation data.
Written by urgent.news from The Economic Times - Top News's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
