Oil prices rise with escalating Middle East conflict, US economic growth

By Zeynep Beyza Kilic

Oil prices rose on Wednesday due to escalating tensions in the Middle East and positive economic indicators in the US, the world's largest oil consumer, which offset earlier news that Hezbollah was seeking a cease-fire with Israel.

The international benchmark Brent crude increased by 0.70% to reach $77.72 per barrel at 10:48 a.m. local time (0748 GMT), up from the previous session's close of $77.18.

The US benchmark, West Texas Intermediate (WTI), rose by 0.56% to $73.98 per barrel, up from the prior session's close of $73.57.

Continued conflict in the Middle East, home to a significant portion of the world’s hydrocarbon reserves, has supported this price increase.

Fighting between the Israeli military and Hezbollah has continued since October 2023.

On Wednesday, Lebanese Hezbollah announced it had repelled two attempted incursions by Israeli forces into southern Lebanon, using artillery and rockets, which reportedly injured Israeli soldiers. A later statement from Hezbollah described a similar clash in the town of Blida.

Despite warnings from international observers about the risk of a broader regional conflict, Israel expanded its operations on Oct. 1, launching a ground invasion into southern Lebanon while continuing its offensive against Hezbollah and Gaza.

Oil prices had dropped by over 4% on Tuesday after reports indicated that Hezbollah was calling for a cease-fire with Israel, though some analysts have questioned the timing of this call.

US State Department spokesperson Matthew Miller reacted to these cease-fire efforts on Tuesday, stating, "Where have they been for a year? For a year, the world has been calling on Hezbollah to stop the attacks across the border into Israel."

In addition to geopolitical concerns, positive economic data from the US contributed to the rise in oil prices. Optimism remains high in the US that inflation can be reduced to target levels without triggering a recession, as economic growth remains steady and unemployment rates low. Experts are closely watching inflation data, scheduled for release on Thursday, for further insights into economic activity.

Analysts believe this data may signal whether the US economy is on track for a "soft landing." Additionally, minutes from the upcoming Federal Open Market Committee (FOMC) meeting are expected to offer insights into future policy directions.

Analysts anticipate that the US Federal Reserve (Fed) will reduce interest rates by 25 basis points at each of its two remaining meetings this year.