Oil prices fall as geopolitical risks hangovers persist

In the global commodity market, prices of crude oil slid as geopolitical hangovers continued to put pressure on the supply and demand sides. Even with positive demand expectations in the U.S., the prices of crude oil nosedived while there are uncertainties about supply over tensions in the Middle East.

On Friday, oil prices fell as new cease-fire and prisoner swap talks began between Israel and Hamas, while uncertainty over the timing of a potential U.S. Federal Reserve interest rate cut increased. It is still unclear how and if Iran will retaliate against Israel following the assassination of the political leader of Hamas on Iranian soil.

According to analysts, the uncertainty has led to increased options trading activity, with market participants wanting to protect themselves from significant upside. This is most evident in the US$85 per barrel strike for the October and November Brent contracts, ING commodities strategists said in a note.

ICE Brent crude fell 0.4% to $80.69 per barrel from the previous session’s close of $81.04. US benchmark West Texas Intermediate (WTI) decreased 0.5% to $77.84 per barrel, after closing at $78.16 in the prior session.

Both benchmarks declined following the start of talks in the Middle East, a region holding the majority of the world’s oil reserves. According to comments reported by Cairo News Channel, citing a ‘high-level’ source, there is a ‘genuine desire’ from all parties involved in the latest cease-fire talks hosted by Qatar to reach an agreement on a cease-fire in Gaza.

The source said that the first day of talks focused on unresolved issues and the implementation of the agreement, with further discussions set for the following day.

The potential for a cease-fire eased supply concerns, putting downward pressure on prices. Meanwhile, uncertainty surrounding the extent of the Fed’s interest rate cuts continues to weigh on the market.

Analysts noted that strong retail sales data and a decline in unemployment claims on Thursday increased the likelihood of a 25 basis point cut in September, rather than a 50 basis point reduction.

Elsewhere, the US Energy Agency said in a report that American crude oil production declined by 128,000 barrels per day (bpd) to around 13.6 million bpd during the week ending August 9.

US crude oil imports increased by 61,000 bpd to about 6.3 million bpd, and exports rose by 118,000 bpd to 3.7 million bpd over the same period.

In the Short-Term Energy Outlook (STEO) released on August 6, the EIA predicted that crude oil output in the country would reach an average of 13.23 million bpd this year. Next year, crude oil output in the country is expected to reach 13.69 million bpd.

For US Federal Reserves, expectations for a cumulative 100 basis point cut by the end of the year remain firm.

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