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The Geopolitical Risk Premium Is Back as Oil Prices Climb


Geopolitical Tensions Drive Oil Higher

Crude oil futures are set to close over 2% higher this week, primarily driven by escalating tensions between Israel and Hezbollah. The market has largely shrugged off soft U.S. gasoline demand, focusing instead on potential supply disruptions in the Middle East. This price movement underscores the oil market's sensitivity to geopolitical risks, especially in key producing regions.

Middle East Conflict Risks

Israel has deployed troops to its northern border as attacks from Lebanon have surged. RBC Capital Markets analysts suggest a direct military confrontation between Hezbollah and Israel is becoming more likely. The potential for Iranian involvement or Israeli strikes on Iranian energy facilities poses a substantial threat to regional energy supplies.

Impact on Oil Supply

The Middle East remains a crucial oil-producing region, and any escalation of conflict could disrupt supply chains. Israel's offshore gas operations are particularly vulnerable to potential Hezbollah attacks. More importantly, if Iran becomes directly involved, it could lead to a broader regional conflict, potentially affecting major oil shipping routes like the Strait of Hormuz.

U.S. Inventory Data

The U.S. Energy Information Administration reported unexpected builds in crude oil and gasoline inventories for the week ending June 21. Crude inventories rose by 3.6 million barrels, contrary to analysts' expectations of a 2.9 million-barrel…

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