Crude oil prices began this week with a decline, following a series of economic reports from China late last week that indicated weakening demand for oil.
These reports highlighted several concerns: a noticeable drop in new home prices, a slowdown in industrial output, and a slight increase in unemployment rates. As a result, oil benchmarks ended last week with a loss, despite earlier expectations of a gain, and the downward trend has continued into this week.
On a more bullish note, the ongoing tensions in the Middle East and the escalating conflict between Russia and Ukraine, following Ukraine’s incursion into Russian territory, remain significant factors supporting the market.
“Persistent concerns about slow demand in China led to a sell-off,” said Hiroyuki Kikukawa, an analyst at Nissan Securities, in a statement to Reuters. However, Kikukawa also noted that “tensions in the Middle East and the escalation of the Russian-Ukraine war, which pose supply risks, are underpinning the market.”
Han Zhong Liang, an investment strategist at Standard Chartered, told Bloomberg, “Near-term volatility is likely to remain elevated as markets stay on alert for a potential Iran response.” He added that “the longevity of the geopolitical risk premium hinges on whether there is a realized impact on the demand-supply balance.”
Meanwhile, U.S. Secretary of State Anthony Blinken arrived in Israel yesterday to negotiate a ceasefire between Tel Aviv and Hamas. However, Reuters reported that Hamas expressed doubts about the success of Blinken’s mission, accusing Israel of undermining mediation efforts.
Despite the geopolitical tensions, oil prices may face further pressure after China’s customs administration reported a significant drop in gasoline exports in July, declining by over 35% due to weaker profit margins in the refining sector.
China exported 5.77 million barrels per day of gasoline last month, totaling 790,000 tons. This figure is down from 1.22 million tons in the same period last year and also lower than the 930,000 tons exported in June, according to customs data.