Intensified tensions in the Middle East and tight supply have led to a surge in oil prices for four consecutive weeks, with crude oil futures reaching their highest levels since last year.
The escalating conflicts in the Middle East, particularly between Israel and Hamas, have triggered concerns about wider confrontations and potential disruptions in oil supply. Analysts warn that if Iran gets directly involved in the conflicts, oil prices could skyrocket to $95-100/barrel in the short term.
Brent crude oil futures prices rose by 4.8% this week to $91.17/barrel, while WTI crude oil futures prices climbed by 4.5% to $86.91/barrel. The energy sector has also shown strong performance, becoming the best-performing sector among the 11 industry sectors of the S&P 500 Index this week.
Despite the bullish trend, some experts believe that the geopolitical risk premium is still high, posing downside risks to the continued rise in oil prices. Factors such as a strong dollar, emerging market pressure, potential production increases by OPEC+, and a delay in interest rate cuts by the Federal Reserve could lead to profit-taking by crude oil bulls.
Looking ahead, Capital Economics expects oil prices to retreat in the second half of the year as OPEC+ may begin to unwind production cuts to maintain market share. Analysts predict that Brent crude could fall to $60 a barrel by the end of 2026, attributing the recent price surge to geopolitical tensions in the Middle East and production cuts by OPEC+.