Crude oil prices have given back some of the gains made on Monday as traders shift their focus back to worries about Chinese demand.
Earlier today, oil prices remained high, with Brent crude surpassing $80 per barrel for the first time in several months. This rise had followed five consecutive days of increases, driven by escalating tensions between Israel and Iran.
However, the war premium seems to be fading quickly. Traders are hesitant to wait long for Israel’s response to Iran’s missile attack from last week. As time passes without retaliation, oil prices may weaken further, a trend observed in earlier Middle Eastern events this year.
With decreased anxiety over the Middle East, oil market participants are now looking back at the main factor influencing prices: demand from China.
According to a Bloomberg report, traders anticipated that the Chinese government would announce new stimulus measures during a crucial briefing from Beijing’s economic planners. This expectation lingered even after recent announcements of stimulus initiatives by the Chinese government.
“Crude is not getting the attention from China that Chinese equities are,” said Vishnu Varathan, head of Asia economics and strategy for Mizuho Bank, in an interview with Bloomberg. “Perhaps the flow of liquidity is favoring the equity markets instead.”
Some analysts believe that today’s price drop also reflects a reassessment of the risks related to potential oil supply disruptions in the Middle East. “Geopolitical tensions in the region continue, but there has been a reduction in exposure based on expectations that any energy supply disruptions may be less severe,” said Yeap Jun Rong, a marketing strategist at IG, to Reuters.
Indeed, some experts argue that it would be counterproductive for Israel to disrupt oil supplies, particularly ahead of the upcoming U.S. elections. This suggests that Israel may respond to Iran in a more measured way rather than through severe actions.
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