Oil prices rise on Middle East tensions and Trump’s tariff push

Oil prices extended gains for a second consecutive session on Wednesday following heightened geopolitical tensions in the Middle East and a push by US president Donald Trump for tougher trade measures against buyers of Russian crude.

Brent (BZ=F) crude futures rose 0.9% to trade at $66.98 per barrel at the time of writing, while West Texas Intermediate (CL=F) futures climbed by the same margin to $63.18 a barrel.

The uptick follows Israel's strikes against senior Hamas figures in Doha, Qatar on Tuesday.

“The current uptick in oil prices has been primarily attributed to an increase in geopolitical risk premiums after Israel's unprecedented strike in Doha,” said Kelvin Wong, senior market analyst at OANDA. “This increases the fears of a short-term supply crunch if Opec+ members' oil production facilities are hit by Israel.”

Compounding geopolitical risk was news that Trump has urged the European Union to impose 100% tariffs on oil imports from China and India, two of Russia’s most significant crude buyers, in an attempt to tighten financial pressure on Moscow.

China and India have emerged as key customers of Russian oil since the Kremlin’s invasion of Ukraine in 2022, helping Moscow weather waves of Western sanctions.

“The modest reaction in crude oil prices to this news, along with scepticism regarding US president Trump's claims about potentially ramping up sanctions on Russian oil … leaves crude oil vulnerable to lower prices,” IG market analyst Tony Sycamore said in a note.

Meanwhile, concerns over demand and rising inventories continue to weigh on the broader outlook. The US Energy Information Administration (EIA) said on Tuesday it expects global crude prices to remain under pressure in the coming months due to growing stockpiles.

Data from the American Petroleum Institute showed US crude inventories rose by 1.25 million barrels in the week to 29 August, up from a 622,000-barrel increase the previous week.

Gold prices held firm above the $3,600 mark in early European trading on Wednesday, as investors positioned ahead of key US inflation data and growing expectations that the Federal Reserve will cut interest rates later this month.

At the time of writing, gold futures climbed 0.1% to $3,685.40 per ounce, while the spot price of gold was steady at $3,644.40 a troy ounce, after hitting a record high of $3,659.10 on Tuesday.

“Sentiment is really bullish. There are several major factors driving gold prices right now. The primary is US rate cut expectations,” Capital.com financial market analyst Kyle Rodda said.

“The near-term outlook depends a lot on this inflation data. If it comes out a bit spicy, then rate cuts could come out of the curve marginally and spark a pullback in what's a technically overbought market.”

Traders are closely watching two key US inflation reports this week, producer price data due on Wednesday, followed by consumer price figures on Thursday, for further signals on the Fed’s policy path.

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Gold has rallied nearly 40% since the start of the year, fuelled by rising demand for safe-haven assets amid escalating trade tensions linked to Trump’s proposed tariffs, as well as continued buying by global central banks.

Analysts at ANZ have raised their year-end forecast for gold to $3,800 per ounce, up from a previous estimate of $3,600. The bank expects bullion to peak near $4,000 by June 2026.

“Macroeconomic challenges and tension arising from tariffs and sanctions are encouraging investors to hedge risks by allocating more funds to gold,” ANZ analysts wrote.

The pound edged up on Wednesday morning against a weaker dollar amid rising expectations that the US Federal Reserve will begin easing monetary policy at its upcoming September meeting. Traders also awaited commentary from the Bank of England (BoE).

Sterling rose by 0.1% to $1.3537 against the greenback, while also climbing by the same margin to €1.1588 against the euro. Meanwhile, the US dollar index (DX-Y.NYB), which measures the greenback against a basket of six currencies, was lower at 97.80.

Investors have increased bets that the Fed will cut interest rates at its 16–17 September policy meeting, following a string of weaker-than-expected labour market data in recent months.

According to the CME FedWatch tool, traders currently assign an 11% probability of a 50 basis point rate cut to a target range of 3.75%–4%, with the remainder expecting a more conventional 25 basis point reduction.

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Speculation around a dovish Fed turn has been fuelled by softening employment figures. The August non-farm payrolls report released on Friday showed the US economy added just 22,000 jobs. Rate cut expectations had already intensified earlier in August after July’s report included downward revisions to payroll figures for May and June.

In the UK, attention will turn to a speech by Bank of England deputy governor Sarah Breeden later on Wednesday. Her remarks are expected to provide further guidance on the central bank’s stance ahead of next week’s policy meeting.

Economists broadly expect the BoE to keep rates on hold at 4%, as Threadneedle assesses signs of slowing inflation against a still-fragile economic backdrop.

In equities, the FTSE 100 (^FTSE) was higher on Wednesday morning, up 0.3% to trade at 9,264 points. For more details on market movements, check our live coverage here.

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