In early trading in the Asian market on Monday, crude oil futures prices rose, continuing the trend of a small rebound last week, thanks to the sudden increase in tensions in the Middle East. On Sunday, Hezbollah in southern Lebanon launched a large number of rockets and drones at Israel, and the Israeli military also said that it had dispatched about 100 fighter jets to attack Lebanon to prevent a larger-scale attack. This is one of the largest conflicts between Lebanon and Israel in more than 10 months. This action not only increases the risk of instability in the region, but also poses a threat to the security of global oil supply. At present, the price of Brent crude oil futures has broken through the important psychological level of $79 per barrel, and the price of WTI crude oil futures is also close to the level of $75.

In addition, the rebound in oil prices is also related to expectations of US monetary policy. The market generally expects that the Federal Reserve will start cutting interest rates in September, and this expectation has boosted investor sentiment to a certain extent. Fed Chairman Powell made a speech at the Jackson Hole Annual Meeting last Friday, clearly stating that the time is ripe for interest rate cuts, which further strengthened the market's expectations for rising oil prices.

Tensions in the Middle East could rise at any time

It is reported that the United States is working to broker a ceasefire agreement in Gaza between Israel and Hamas in exchange for the release of hostages, although the agreement is extremely challenging to reach. At the same time, the United States is also sending more troops to the Middle East, on the one hand to send a strong signal to prevent the spread of conflict, and on the other hand to provide protection when the US military is attacked.

Last month, Hamas leader Ismail Haniyeh was killed during a visit to Tehran. Iran said it would respond harshly and blamed Israel. Although Israel did not confirm or deny the relevance of the incident, US officials said they were closely monitoring possible retaliation from Iran.

Morgan Stanley said in a report last Friday that the decline in oil inventories supported oil prices to a certain extent. The bank said: "Currently, the supply and demand balance in the oil market is tight, and inventories have fallen by about 1.2 million barrels per day in the past four weeks. We expect this situation to continue until the end of the third quarter.

Loose monetary policy may trigger a sharp rise in oil prices

Last week, both major crude oil price indicators reached their lowest point since early January this year. This phenomenon came after the US government significantly lowered its estimate of new jobs before March this year, which triggered market concerns about a potential economic recession. Last Friday, Federal Reserve Chairman Powell expressed support for the Fed's loose monetary policy in a public speech. He stressed that it would be undesirable if the job market cooled further, and expressed optimism that the inflation rate would be close to the 2% target set by the Fed.

Analysts at Australia and New Zealand Banking Group (ANZ) said in a The report pointed out that expectations of loose monetary policy have boosted the overall sentiment in the commodity market. However, they also mentioned that due to the poor outlook for major economies, this affected fuel demand, causing oil prices to fall last week.

Before Powell's speech, the US dollar index had shown signs of weakness, around 101.45. After the speech, the US dollar index fell further to 100.67, hitting its lowest closing price in more than a year. In the Asian market on Monday, the US dollar index continued to fall, hitting a low of 100.53, the lowest level since July 2023. The depreciation of the US dollar usually increases the demand for oil denominated in US dollars by investors holding other currencies, which may have a certain supportive effect on oil prices.

How will oil prices trend in the future?

Morgan Stanley recently adjusted its forecast for global oil demand growth in 2024, mainly based on the slowdown in economic growth in major Asian economies, the increase in the use of electric vehicles, and the popularity of liquefied natural gas (LNG)-powered trucks in major Asian economies. These factors together have led to a downward revision in expectations for oil demand growth.

Specifically, Morgan Stanley reduced its forecast for global oil demand growth in 2024 from 1.2 million barrels per day to 1.1 million barrels per day. In addition, the bank also slightly lowered its forecast for Brent crude oil prices, predicting an average price of $80 per barrel in the fourth quarter of 2024, down from the previous forecast of $85 per barrel.

In a report released on August 22, Morgan Stanley analysts pointed out that the demand for LNG trucks The switch has resulted in a reduction of 100,000 to 150,000 barrels per day in oil demand in major Asian economies, while the replacement of traditional fuel vehicles with electric vehicles has also resulted in a reduction in demand of about 100,000 barrels per day. Morgan Stanley's forecast is consistent with the Organization of Petroleum Exporting Countries (OPEC)'s downward revision of its oil demand growth forecast for this year and 2025 last week, which also mentioned the weak demand in major Asian economies.

Morgan Stanley further pointed out that despite the current tight supply and demand in the oil market, with inventories falling by about 1.2 million barrels per day in the past four weeks, this trend is expected to continue until the end of the third quarter. However, with the slowdown in summer demand and the increase in supply from OPEC and non-OPEC oil producers starting in the fourth quarter, the supply and demand balance is expected to gradually ease and turn into a surplus in 2025.

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