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UBS Predicts Oil Price Increase Despite U.S. Gasoline Demand Concerns

Quiver Editor

Oil prices (USO) edged higher on Wednesday, despite a surprise increase in U.S. gasoline supplies, as investors remained concerned about the potential expansion of the Gaza conflict disrupting crude supplies from the Middle East. Brent crude futures rose 24 cents, or 0.3%, to settle at $85.25 per barrel, while U.S. West Texas Intermediate crude futures gained 7 cents to close at $80.90 a barrel. The rising tensions between Israel and Lebanon's Hezbollah have heightened fears of a broader conflict that could involve major oil producer Iran, further exacerbating supply risks.

Geopolitical tensions in the Middle East have been a significant factor influencing oil prices. The recent cross-border strains between Israel and Hezbollah have escalated, increasing the likelihood of an all-out conflict that could disrupt regional oil supplies. Turkish President Tayyip Erdogan expressed solidarity with Lebanon and called for regional support, while Houthi attacks on shipping in the Red Sea have added to the geopolitical risk premium in the market. Despite these concerns, oil prices were initially weighed down by a surprising 3.6 million barrel increase in U.S. crude oil stocks reported by the U.S. Energy Information Administration (EIA).

Market Overview:
  • Rising Israel-Lebanon tensions increase Middle East war risks.
  • Turkey stands with Lebanon, calls for regional support.
  • U.S. oil and gasoline stocks unexpectedly rise, weighing on market.
Key Points:
  • Brent crude settles at $85.25 per barrel, WTI at $80.90.
  • Geopolitical risks from potential Iran involvement in conflict.
  • UBS expects oil prices to rise in coming weeks.
Looking Ahead:
  • Monitoring geopolitical developments in the Middle East.
  • Potential impact of U.S. gasoline consumption on oil prices.
  • Ongoing assessment of global oil inventory changes.

Analysts noted the contrasting trends in oil inventories globally, with declines in Japan and Europe suggesting a tightening market, despite rising U.S. stockpiles. UBS (UBS) analyst Giovanni Staunovo highlighted this disparity, describing the oil market as a "tale of different stories." The unexpected rise in U.S. gasoline stocks, coupled with weaker-than-expected gasoline consumption during the peak summer driving season, has further complicated the outlook for oil prices. U.S. gasoline demand was down 3.6% from a year ago, with stocks of the fuel increasing despite refiners cutting back output.

The market's focus will remain on geopolitical developments and their potential impact on oil supply, particularly the risk of a broader conflict in the Middle East involving Iran. Additionally, the upcoming Fourth of July holiday in the U.S. will be closely watched for any changes in gasoline demand, which could influence short-term oil price movements. Despite the current uncertainties, UBS maintains an optimistic view, expecting oil prices to rise in the coming weeks as the market tightens outside the U.S.

About the Author

David Love is an editor at Quiver Quantitative, with a focus on global markets and breaking news. Prior to joining Quiver, David was the CEO of Winter Haven Capital.

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