By Samer Hasn, Senior Market Analyst at XS.com
Oil prices slipped by around 0.3% for both Brent and WTI, pausing after three consecutive days of gains.
The mild correction reflects short-term pausing amid a set of.
The broader setup for oil remains tilted to the uspside as multiple factors of geopolitical and bullish global demand align to support prices.
Geopolitical risks tied to possible renewed escalation between Iran and Israel, the continuing ripple of Russian sanctions, and a weakening dollar are converging with the prospect of the U.S. government shutdown ending.
A government reopening would restore federal spending and data flows, boosting consumer and industrial confidence, while a softer dollar enhances global purchasing power for crude.
The geopolitical front adds another layer of upside risk. Oil futures have been rising as sanctions on Russia start to translate into tangible supply constraints.
On the Middle East front, according to the New York Times, Iran is rapidly expanding its missile production capacity, preparing for what it sees as an inevitable confrontation with Israel.
Israeli officials have warned of renewed military action should Iran move closer to nuclear capability, emphasizing how any regional flare-up could immediately affect global supply routes and pricing stability.
This escalation raises the risk of a new Middle Eastern conflict, a scenario that could inject a fresh premium into oil markets. This shock can stand at least for the short term until the market reassesses supply constraints risk.
On demand side, adding to the bullish tone, the International Energy Agency has shifted its long-term view. In a recent report, the IEA projects that global oil demand could continue to rise until 2050 under current policy settings, reaching 113 million barrels per day. This marks a reversal from previous forecasts that expected a peak by 2030.
While the agency warns that such a path would push global temperatures up by 2.9 degrees Celsius, the revision underscores the persistence of oil’s central role in the world economy and the political resistance slowing the energy transition.
On the downside, however, monetary policy risks could soon reassert themselves. A deep divide within the Federal Reserve has clouded the outlook for interest rates, with officials split between inflation hawks and growth-focused doves. Fed Chair Jerome Powell has downplayed expectations for a December rate cut, and the CME FedWatch Tool shows the odds have dropped to around 65% from over 90% a month ago.
If hopes for a rate cut continue to fade, the recovery in the dollar could cap oil’s near-term upside.