HG MARKETS:

Oil prices edged higher on Wednesday following a series of geopolitical developments, including Israel’s reported strike on Hamas leadership in Qatar and Poland’s defensive actions against Russian drones. Brent crude futures rose by 0.8% to $66.95 per barrel, while U.S. West Texas Intermediate (WTI) crude climbed 0.9% to $63.19 per barrel. Despite initial spikes of nearly 2% in both benchmarks, prices soon retraced much of their gains.

Geopolitical risk escalated further when Poland, a NATO member, intercepted Russian drones during an attack on western Ukraine. While this marked a significant escalation in NATO’s engagement, markets remained largely unaffected in terms of supply disruption. Analysts noted that geopolitical risk premiums tend to be short-lived unless actual supply chains are disrupted.

In a parallel diplomatic development, U.S. President Donald Trump reportedly urged the European Union to impose 100% tariffs on imports from China and India. The move is intended to pressure Russian President Vladimir Putin by targeting two of Russia’s key oil buyers. However, the proposed sanctions raise questions about their potential inflationary effects and implications for U.S. monetary policy.

Economic uncertainty remains a central theme, with market participants closely monitoring the Federal Reserve’s policy direction. A potential interest rate cut at the upcoming September 16–17 meeting could stimulate economic activity, thereby increasing oil demand. However, monetary easing must be balanced against inflationary risks associated with escalating geopolitical tensions and trade policy shifts.

On the supply side, bearish indicators dominate market sentiment. The U.S. Energy Information Administration (EIA) has warned of growing inventories amid rising output from OPEC+ nations. Additionally, recent data from the American Petroleum Institute indicated a build in U.S. crude, gasoline, and distillate stocks, reinforcing concerns about oversupply and limiting upward momentum in oil prices.