Oil returned to noticeable declines this morning, with both major benchmarks, Brent and West Texas Intermediate (WTI), declining by approximately 1.6%, thus reaching their lowest levels this April.

The oil declines come as concerns about the widespread regional war in the Middle East continue to recede, in addition to pessimism about interest rates remaining high for a prolonged period.

It seems that the markets are still comfortable that the possibility of a direct war between Iran and Israel, dragging the entire Middle East into total chaos and causing disruptions to global energy supply chains, has dissipated.

However, the state of uncertainty will remain high, in my opinion, because the Israeli side, represented by the head of the war government, may need to reignite the fuse of war given the multiple internal pressures.

Even without these direct military actions, fears are returning again about the expected ground military operation in Rafah, which regional and international actors are warning of its severe consequences, which may include the region, which is rich in oil production and transportation nodes. If the Rafah front actually ignites, this may restore oil to the premium it has gained earlier since the beginning of the regional escalation in early April.

As for the global economy front, it seems that market sentiment is at its lowest levels this year, with pessimism about the impossibility of lowering interest rates even by up to the entire year. The probability that the Federal Reserve will cut interest rates in June is no longer more than 15% today, after reaching 67% more than a month ago, according to the CME FedWatch Tool.

This week will also be full of important economic data, with a set of services and manufacturing activities figures in both the Eurozone and the United States, in addition to a further expected accumulation of US oil inventories.

While the positive surprises in these figures may be supportive of energy market fundamentals, at the same time they may encourage central banks to be more patient with interest rate cuts this year.

Also, this Friday, we await the March reading of the Core Personal Consumer Expenditure (Core PCE) Price Index, with expectations for inflation to slow to 2.6% on an annual basis from 2.8% and price growth to continue by 0.3% on a monthly basis. While more surprises about the acceleration or slowdown in inflation may be an impetus for energy prices to deteriorate further.