The supply and demand of commodities are primarily influenced by the economy and geopolitics. The economy has a greater impact on demand, while geopolitics has more control over supply. Last week, economic concerns led to a decrease in oil prices, but this week, the Israel-Hamas conflict is expected to drive prices up. The extent of this increase is uncertain, even for Saudi Arabia. Oil prices fell between 9% and 11% last week, the largest decline since March. This drop was influenced by high US Treasury yields, a strong dollar, and low gasoline consumption. However, this week could see a recovery in commodity prices, including oil, due to a potential weakening of the dollar. Sunil Kumar Dixit, a technical chartist, predicts that profit-taking could further weigh on the dollar. The Israel-Hamas conflict, which has the potential to reshape power dynamics in the Middle East, is also likely to impact oil prices. If supply is affected, prices could rise. Iran, which supports Hamas, is a significant player in the oil trade as the world’s fifth-largest oil producer. The United States may enforce sanctions against Iran, which could affect its oil production. However, the US might proceed cautiously to avoid benefiting Russia, which could take advantage of any Middle East oil crisis. Venezuela could also benefit if the US eases sanctions. Unlike the Arab Oil Embargo in 1973, this crisis does not involve unified attacks from Arab countries against Israel. Additionally, oil demand has moderated, and there is spare production capacity in Saudi Arabia and the United Arab Emirates. The Saudis, who usually increase production during shortages, have been cutting production to increase oil prices. President Joe Biden could turn to the US oil reserve if supply shortages cause prices to soar. In conclusion, geopolitics has a significant but relatively short-term impact on the market, while the economy has a more lasting effect. The Israel-Hamas conflict is expected to raise crude oil prices in the short term, but it is uncertain how long this will last.
