Oil prices rise 2% to hit 3-week high on China stimulus, supply worries by MidEast conflict; Brent reclaims $75

International crude oil prices climbed two per cent to hit a three-week high on Tuesday, September 24, after the monetary stimulus from China, the world's top importer, and concerns that conflict in the Middle East could hit regional supply. At the same time, another hurricane (after the recent storm Francine) threatened supply in the US, the world's biggest crude oil producer.

Brent futures were last up $1.14, or 1.5 per cent, to $75.04 a barrel, while US West Texas Intermediate (WTI) crude rose $1.16, or 1.7 per cent, to $71.53. That put the Brent crude benchmark on track for its highest close since September 2. Back home, crude oil futures last traded 1.46 per cent higher at ₹5,985 per barrel on the multi commodity exchange (MCX).

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What's driving crude oil prices?

-Analysts said the Chinese government's announcement of its largest stimulus package since the COVID-19 pandemic, combined with the sudden rise of geopolitical tension in the Middle East dealt a blow to the bearish sell-off sentiment that dominated the crude oil markets in the past three weeks.

-China's central bank unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government's growth target. Still, analysts warned more fiscal help was vital to hit these goals.

-In the Middle East, a key oil-producing region, an Israeli airstrike on the southern suburbs of Beirut killed a Hezbollah commander as fears of a full-fledged war in the region mounted. The strikes risk pulling Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), closer to a conflict with Israel. Iran supports the Lebanese militant group.

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-The Israeli military chief stated that attacks on Hezbollah would continue to accelerate. Analysts said this has struck new fears of the possibility of an all-out war in the Middle East, which could completely destabilize the region.

-Jake Sullivan, the White House national security adviser, said US President Joe Biden is determined to bring about a Gaza ceasefire and hostage deal with the Palestinian militant group Hamas while also seeking to de-escalate tensions on Israel's border with Lebanon.

-Meanwhile, US oil producers were scrambling to evacuate staff from oil production platforms in the Gulf of Mexico as a second hurricane --after the recent storm Francine, could tear through offshore oilfields in two weeks. 

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-Several oil companies paused some of their production even though Tropical Storm Helene is currently on track to miss most of the producing regions in the western and central Gulf of Mexico. They hit the Florida Panhandle as a hurricane late on Thursday.

-Analysts projected US energy firms pulled about 1.2 million barrels of crude out of storage during the week ended September 20. If correct, that would be the fifth time in six weeks that US crude stocks have declined compared with a withdrawal of 2.2 million barrels during the same week last year and an average decrease of 1.0 million barrels over the past five years (2019-2023).

Where are oil prices headed?

On Monday, crude oil prices were volatile and slipped from their highs after mixed US economic data. The US manufacturing activities slipped to 17-month lows and pushed prices lower. The US dollar index also rebounded which also triggered profit taking. The escalating tensions in the middle-east after Israel fired missiles on Lebanon and declared an emergency for the week, supported prices. 

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"Possible fresh storms in the Gulf of Mexico could also support prices at lower levels. In today's session, crude oil is having support at $70.00-69.40 and resistance at $71.10-71.70. In INR terms, crude oil has support at ₹5,840-5,780 while resistance is at ₹5,960-6,050'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.