Oil prices climbed on Tuesday due to concerns that the Iran-Israel conflict may intensify. This raises the risk of further unrest and potential disruption of oil supply from the key Middle East producing region.
Brent crude futures increased by 34 cents, or 0.5 percent, reaching $73.57 a barrel as of 03:40 GMT (currently trading above $73.6). U.S. West Texas Intermediate crude rose by 29 cents, or 0.4 percent, to $72.06 (currently trading above $70.7). Both contracts had risen more than 2 percent earlier in the trading session.
Oil prices settled more than 1 percent lower on Monday due to hopes that the conflict might ease after media reports suggested Iran was seeking an end to hostilities.
Read more: Crude oil prices surpass $74.85 as Middle East tensions intensify
Focus of upcoming Fed meeting
“Added volatility and caution ahead of the Fed policy decision are further ensuring higher-paced price reactions in oil,” Reuters reported, citing Priyanka Sachdeva, senior market analyst at Phillip Nova. Sachdeva referred to the U.S. Federal Open Market Committee meeting, which guides interest rate decisions, that begins on Tuesday.
Vijay Valecha, chief investment officer at Century Financial, informed Economy Middle East that the upcoming meeting will primarily focus on the Fed’s revised economic projections and the dot plot, which will be updated for the first time since March. This meeting could provide insights regarding the number and timing of potential interest rate cuts in 2025. In March, the median dot still indicated two cuts for this year, but the last set of projections was released prior to Trump’s significant tariff announcement on April 2.
“At the time, the FOMC was anticipating two rate cuts in 2025. Since then, persistent inflation, the impact of tariff increases, and other possible shifts in policy and regulation from the Trump administration have disrupted the outlook. Market participants are keenly observing whether that median will adjust to one cut or remain affirmed at two, quarter-point reductions.”
Valecha added, “Overall, this meeting may not provide a definitive signal regarding timing, but it will act as a crucial checkpoint for the Fed’s evolving reaction function. Markets will be closely analyzing the tone of the press conference, any changes to the dot plot, and commentary regarding the inflation trajectory, tariffs, and labor market resilience for clues on the likely pace of easing in the future.”
Mixed economic signals from China
Nonetheless, most of the market remains focused on the uncertainty surrounding the Iran-Israel tensions. Iran is the third-largest producer among members of the Organization of the Petroleum Exporting Countries. The concern is that the fighting could disrupt its oil supply and lead to higher prices.
Oil prices fell sharply on Monday as reports that Iran was seeking a ceasefire with Israel largely mitigated concerns over the conflict.
Oil was also pressured by mixed economic readings from top oil importer China, which provided inconsistent signals regarding the world’s second-largest economy. China’s industrial production grew less than expected in May, while retail sales exceeded expectations.
While oil has advanced on fears of potential supply disruptions in the Middle East, it has struggled to maintain gains amid ongoing concerns about slowing demand, particularly in light of trade hostilities between the U.S. and China.
Oil markets are also apprehensive that steady production increases by OPEC could result in a supply glut later in the year.
