Crude oil prices rose at the start of this week following a rocket strike on the Golan Heights, which reignited fears of escalating conflict in the Middle East.
While prices are still near a six-week low, according to Bloomberg, the overall trend is upward. Positive economic data from China has eased concerns about demand in the world’s largest oil importer. The latest data shows industrial profits for June increased, reflecting monthly growth.
“Concerns around China’s economy have broadly weighed on energy commodity prices,” said Vivek Dhar, an analyst at Commonwealth Bank of Australia, to Bloomberg. “Demand concerns, though, will likely give way to rising geopolitical risks in the Middle East early this week.”
On Saturday, a rocket attack on the Israel-annexed Golan Heights resulted in more than a dozen fatalities. Hezbollah denied involvement, but the Israeli government has threatened retaliation against the Lebanon-based group, heightening fears of further escalation.
Last week, oil prices experienced their third consecutive weekly decline, mainly due to concerns about Chinese demand. Refinery run data indicated weakening demand for oil in China, and there was also an annual decline in oil imports.
China’s fuel imports fell by 11% in the first half of the year, reinforcing the perception of weakening overall demand.
Despite these concerns, geopolitical factors are expected to be the primary driver of oil prices this week. “Worries over escalating tensions in the Middle East prompted fresh buying, but gains were limited by lingering concerns of weakening demand in China,” said Toshitaka Tazawa, an analyst at Fujitomi Securities, to Reuters.
In addition to the recent violence in the Middle East, Israel has reconsidered its stance on a potential ceasefire with Hamas, seeking changes to the ceasefire plan. This has complicated ceasefire negotiations, according to a Reuters report citing an unnamed Western official and two unnamed Egyptian sources.