By Rania Gule, Senior Market Analyst at XS.com – MENA
The oil markets are currently experiencing a complex state of fragile balance between geopolitical factors supporting prices and financial and economic pressures limiting their ability to achieve sustainable gains. From my perspective, the recent movements in crude prices near $64 do not necessarily reflect a fundamental change in market fundamentals; rather, they express swift reactions to political and security events, particularly the renewed tensions between the United States and Iran, which remain more of a psychological factor than a tangible supply-side influence so far.
The rise in Brent and WTI crude prices following Iranian boats approaching a U.S. oil tanker confirms that the market remains sensitive to any signals threatening the security of navigation through the Strait of Hormuz—the vital artery through which the majority of Gulf oil exports to Asia pass. In my view, this sensitivity is somewhat exaggerated, as recent history shows that such incidents are often leveraged politically and in negotiations without turning into long-term supply disruptions. Nevertheless, the mere increase in geopolitical risk is sufficient to push traders to price in a temporary risk premium.
On the other hand, I see that the broad sell-offs in global equity markets represent a significant constraint on any strong oil rally. Oil no longer moves independently of overall market sentiment; rather, it is part of an asset basket that investors manage according to risk and liquidity strategies. When risk appetite declines, as happens during financial stress or market corrections, it becomes difficult for oil to maintain gains even amid supportive geopolitical news, which explains the limited recent price increases.
Another key factor is the strength of the U.S. dollar, which plays a pivotal role in restraining oil prices. In my view, the continuation of relatively tight U.S. monetary policy—or even expectations of delayed interest rate cuts—puts pressure on investment demand for oil. A stronger dollar makes crude more expensive for importing countries and limits speculative capital flows into energy markets, regardless of supportive political factors.
Regarding fundamentals, U.S. crude inventory data showing a decline of more than 11 million barrels is undoubtedly positive, reflecting a temporary improvement in the supply-demand balance. However, I interpret these figures cautiously, as markets often overreact before the official data from the U.S. Energy Information Administration are released. Additionally, Reuters’ pre-survey expectations of rising inventories indicate a divided market, which reinforces short-term volatility rather than establishing a clear trend.
On the global demand side, I see the U.S.-India trade agreement as having moderately positive medium-term implications, especially if it translates into actual growth in industrial and commercial activity. India represents one of the key drivers of energy demand growth in the coming years, and any improvement in its trade relations with Washington could reflect on oil consumption. However, I do not expect this factor to have an immediate and strong impact; it will likely remain more of a psychological support than a tangible numerical boost in the short term.
Meanwhile, the war in Ukraine and Russian attacks continue to play an indirect role in the oil market by keeping the shadow of sanctions on Russian crude alive. From my perspective, the market has partially adapted to this issue, as Russia has found alternative channels to export its oil, particularly to Asia. However, any new tightening of sanctions or sudden disruption of Russian supplies could reshuffle the cards and push prices higher, even if temporarily.
Considering all these factors, I expect oil prices in the near term to remain confined within a volatile sideways range, with a slight upward bias conditioned on unexpected geopolitical developments or strong data confirming demand improvement. In my view, crude will struggle to sustainably break higher levels unless there is either a real escalation threatening supplies or a clear shift in U.S. monetary policy weakening the dollar. In the medium term, I expect the focus to gradually return to market fundamentals, particularly global demand growth and OPEC+’s ability to manage supply flexibly.
In conclusion, I see the oil market living in a tug-of-war between politics and economics, between fear and greed. The smart investor, in my view, is one who navigates this period cautiously, separating news noise from long-term structural trends, because quick gains may be tempting, but in such a volatile market, they come with high risks.