Last Friday, the settlement price of Brent crude oil futures rose by 0.50 dollars, a 0.6% increase, closing at 79.66 dollars per barrel. U.S. crude oil futures increased by 0.65 dollars, or 0.9%, settling at 76.84 dollars. Overall, Brent crude oil rose by more than 3.5% last week, while U.S. crude oil increased by over 4%.
Dennis Kissler, Senior Vice President of Trading at BOK Financial, stated, "The oil market is currently in a rebound phase... Geopolitical tensions continue to support oil prices, while concerns about an economic recession have temporarily eased."
Last Thursday, three Federal Reserve policymakers expressed increased optimism that inflation would fall to a level supportive of interest rate cuts. Additionally, the larger-than-expected drop in initial jobless claims further boosted confidence in economic recovery.
Last Saturday, Federal Reserve Governor Michelle Bowman slightly adjusted her traditionally hawkish stance, acknowledging some "encouraging" progress in controlling inflation over the past few months. However, she emphasized that inflation remains "disturbingly high" above the Federal Reserve's 2% target, with upward risks.
In her prepared remarks for a closed-door address to the Kansas Bankers Association, Bowman indicated that if upcoming data continue to show inflation gradually approaching the Fed's 2% goal, gradually lowering the federal funds rate would be appropriate to avoid overly restricting economic activity and employment. However, she cautioned policymakers to remain patient and avoid overreacting to any single data point, which could disrupt the ongoing inflation reduction process.
At its late July meeting, the Federal Reserve maintained the policy rate within the range of 5.25%-5.50% but hinted that if inflation continues to cool, rate cuts could start as early as September. The Fed's core inflation indicator, the Personal Consumption Expenditures (PCE) price index, showed a year-over-year increase of 2.5% in June.
While Bowman's remarks did not rule out the possibility of a rate cut next month, she noted that the Fed would have more economic data by its September meeting and a better understanding of how recent financial market fluctuations might impact economic prospects. She refrained from reiterating her previous stance of being willing to increase rates at future meetings if necessary, instead striking a more cautious tone regarding imminent policy adjustments.
Bowman reiterated her base expectation that inflation would continue to decline with stable monetary policy. However, she expressed doubts about whether price pressures would ease as rapidly this year as they did last year. Despite indicating that the risks to the Fed's twin goals—price stability and full employment—are moving towards a better balance, she remains more concerned about inflation.
In July, the U.S. unemployment rate rose to 4.3%, the highest in nearly three years. Bowman suggested that this might overstate the cooling of the labor market, pointing out that layoff levels remain low. She also mentioned that Hurricane Barry could temporarily slow down job growth.
Moreover, Bowman warned that risks, including geopolitical tensions, could further push up prices. "Given the upward risks to inflation, I believe it is necessary to continue closely monitoring our price stability mandate, while also being attentive to the risks of significant weakening in the labor market," she said.
Last week, the larger-than-expected drop in initial U.S. jobless claims indicated that concerns about a labor market collapse might be exaggerated, suggesting the labor market is still gradually loosening.
Additionally, data released by China's National Bureau of Statistics last Friday showed that the Consumer Price Index (CPI) rose by 0.5% year-over-year and month-over-month in July, achieving a five-month high. The previous median survey estimates for CPI were both 0.3%. This data also supported the oil market.
After three consecutive days of gains, the dollar index retreated, falling by 0.136% to 103.14. A weaker dollar helps boost demand, as oil becomes cheaper for foreign buyers.
The National Oil Corporation of Libya announced that its Sharara oilfield had declared force majeure starting from Wednesday, citing protests which had gradually reduced its production. This situation further supported the rise in oil prices.
Following the assassinations of high-ranking Hamas and Hezbollah officials, Iran and Hezbollah vowed retaliation, further supporting oil prices amid an escalating Israeli-Palestinian conflict.
On Sunday, Hamas called for mediators to propose a plan based on previous talks rather than initiating new negotiations for a Gaza ceasefire agreement. This demand raised doubts about whether Hamas would participate in a mediator-convened meeting scheduled for Thursday.
Last week, leaders from the U.S., Egypt, and Qatar urged Israel and Hamas to hold talks on August 15 in Cairo or Doha to finalize a Gaza ceasefire and hostage release agreement. Israel has stated it will send negotiators to the meeting. Although Hamas initially indicated it was reviewing the proposal, its latest statement suggested a potential withdrawal from the new round of talks.
In the statement, Hamas called for mediators to present a plan based on President Biden's vision and United Nations Security Council resolutions to implement the July 2, 2024, agreement, demanding that the mediators enforce it on Israel. Hamas opposed initiating new negotiations or presenting new proposals, which they felt would allow Israel to continue its "genocidal" actions.
Hamas claimed to have shown flexibility throughout the negotiations, but the organization's actions, especially the end-of-month assassination of its leader Haniyeh in Tehran, demonstrated that Israel was not taking the ceasefire agreement seriously. Israel has not responded to these allegations.
On May 31, U.S. President Biden proposed a three-phase plan to achieve a ceasefire. Since then, Washington and regional mediators have worked tirelessly to arrange a Gaza ceasefire in exchange for hostages, but progress has repeatedly been hampered.
The recent assassinations of Hamas leader Haniyeh in Iran and Hezbollah's top commander Shukur in Beirut have sparked threats of retaliation against Israel. ANZ Bank analysts noted in a report that traders continue to closely watch tensions in the Middle East.
Additionally, Gaza's emergency services reported last Saturday that an Israeli airstrike on a school housing displaced Palestinian families in Gaza City killed about a hundred people. However, Israel claimed the death toll had been exaggerated.
On Sunday, August 11, Hamas called for mediators to propose a plan based on previous discussions rather than new Gaza ceasefire negotiations, raising doubts about whether Hamas would attend the mediator-convened meeting on Thursday.
Additionally, the U.S. added three active oil rigs this week, bringing the total to 485, a number typically seen as a leading indicator of future production.
Investors should also closely monitor the monthly crude oil market report to be released by OPEC during this trading session.
