West Texas Intermediate (WTI) crude oil prices continue to hover in a narrow range just above the mid-$70s during early Asian trading on Tuesday, remaining close to a nearly three-week high reached the previous day. The market is experiencing a tug-of-war influenced by various fundamental factors.
Escalating tensions in the Middle East are casting a shadow over the oil market. Recent Israeli airstrikes on Iranian-backed Hezbollah positions in Lebanon resulted in nearly 500 fatalities on Monday, heightening concerns about a potential broader conflict in this critical oil-producing region. This situation, coupled with worries that a tropical storm could disrupt U.S. oil production, serves as a supportive element for crude prices.
Conversely, the U.S. dollar (USD) is facing challenges in leveraging its recent recovery from a year-to-date low, which followed last week’s significant interest rate cuts by the Federal Reserve. The anticipation of further policy easing by the Fed is creating a backdrop that supports demand for USD-denominated commodities, including crude oil.
However, the potential for price gains remains limited due to a pessimistic outlook on the global economy. The release of flash Purchasing Managers’ Index (PMI) data on Monday revealed a surprising and sharp contraction in business activity within the Eurozone for September. Additionally, concerns about reduced fuel consumption in China, the world’s largest oil importer, add to the bearish sentiment surrounding crude oil.
Given this mixed fundamental landscape, traders are advised to exercise caution before making aggressive moves on crude oil prices. The market is likely to remain attentive to insights from key Federal Open Market Committee (FOMC) members and the upcoming release of the U.S. Personal Consumption Expenditures (PCE) Price Index scheduled for Friday.
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