Oil prices rebounded on Tuesday, recouping some of the previous steep losses, as traders continued to monitor the evolving Israel-Hamas conflict while also turning their attention to a slew of forthcoming reports on business activity.
After a roughly 3% decline on Monday, prompted by a series of diplomatic efforts aimed at de-escalation in the Israel-Hamas conflict and Hamas’s agreement to release some hostages, traders began to reconsider the risk of the conflict expanding to the broader Middle East region, which could disrupt oil supplies.
However, this week witnessed ongoing hostilities between Israel and Hamas, including missile exchanges, and the looming prospect of an Israeli ground assault on the Gaza Strip.
Brent oil futures climbed 0.5% to $90.21 per barrel, while West Texas Intermediate crude futures saw a 0.4% rise, reaching $85.86 per barrel as of 21:12 ET (01:12 GMT).
Oil prices had previously recorded two weeks of robust but volatile gains in response to the start of the Israel-Hamas conflict. However, they faced a sharp retreat this week, driven by profit-taking and the absence of a major escalation in the conflict.
This week, market focus now shifts to crucial business activity reports from the United States and other major economies, as well as a European Central Bank meeting that could provide insights into the global economy and future oil demand.
PMIs in the Spotlight as the Fed Meeting Nears
Purchasing Managers’ Index (PMI) readings from Australia and Japan released on Tuesday indicated ongoing weakness in business activity throughout October in these two economies.
Investors are eagerly anticipating the flash PMI data from the United States, set to be unveiled later in the day, to assess the state of business activity in the world’s largest fuel consumer.
Both manufacturing and services PMIs are expected to show contraction in October, as high interest rates and persistent inflation weigh on local businesses. Similar trends are anticipated in the PMI readings from the Eurozone and the UK, potentially signaling weaker economic activity and softer fuel demand in the coming months.
These reports emerge just ahead of a Federal Reserve meeting scheduled for next week, where the central bank is widely expected to maintain current interest rates while indicating a commitment to higher rates for an extended period.
Over the past year, higher interest rates had been a significant source of concern for the oil markets, as they raised fears of reduced economic activity, which could impact oil demand.
However, this concern was partially mitigated by strong evidence of considerably tightened oil supplies this year, driven by substantial supply cuts from Saudi Arabia and Russia. Additionally, U.S. inventories consistently decreased, and the Biden administration recently outlined plans to replenish the Strategic Petroleum Reserve.
