Oil prices continued their upward trajectory on Monday, driven by escalating tensions in the Middle East.
The Brent crude oil, against which Nigerian crude oil is priced, rose by 53 cents, or 0.7% to $79.55 per barrel, while U.S. crude oil climbed by 51 cents, or 0.7% to settle at $75.34 per barrel.
These gains came as the Gaza conflict threatened to spill over into a wider regional confrontation, prompting fears of disruption to oil supplies from the Middle East, one of the world’s most critical oil-producing regions.
The latest surge in oil prices followed one of the most intense clashes in more than ten months of border skirmishes between Israel and Hezbollah.
On Sunday, Hezbollah launched hundreds of rockets and drones into Israel, prompting Israel’s military to respond with airstrikes using about 100 jets to preempt further attacks from southern Lebanon.
The escalating violence raises concerns that the conflict could draw in Hezbollah’s key backer, Iran, and potentially the United States, Israel’s staunchest ally, adding further geopolitical instability to an already volatile region.
“Geopolitical risk factors will likely influence the oil market significantly,” said Kelvin Wong, a senior market analyst at OANDA in Singapore. “Increased odds of a tit-for-tat retaliation by Hezbollah and Iran in response to Israel’s preemptive strikes could continue to support higher crude prices.”
Beyond geopolitical tensions, the oil market received another boost from the U.S. Federal Reserve’s indication that interest rate cuts are on the horizon.
Federal Reserve Chair Jerome Powell’s recent endorsement of an imminent easing of monetary policy lifted sentiment across global markets, particularly within the commodity sector.
Analysts from ANZ noted that rate cuts could provide a much-needed boost to global economic activity, lifting overall demand for oil and other fuels.
However, oil traders remain cautious, with concerns about oversupply from the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+.
The group has signaled plans to raise production later this year despite ongoing concerns about weaker demand from top oil importer China.
Senior market analyst Priyanka Sachdeva from Phillip Nova stated that while U.S. demand and the refilling of the Strategic Petroleum Reserve (SPR) offer some support for prices, the risk of excess supply remains a key factor weighing on the market.
The U.S. Energy Department announced on Friday that it had purchased nearly 2.5 million barrels of oil to replenish the SPR, a move that is expected to help stabilize prices in the short term.
At the same time, the number of active U.S. oil rigs remained unchanged at 483 last week, according to Baker Hughes’ latest report, signaling steady production levels in the U.S. despite the global market fluctuations.
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