Oil prices dropped more than 4% early Tuesday as traders remained cautious. They are not seeing any actual supply disruptions in the Middle East, and once again, concerns about weak demand from China are taking center stage.
As of 9:30 a.m. EDT on Tuesday, both WTI Crude and Brent Crude benchmarks were down about 3%. The U.S. benchmark fell below $75 per barrel, while Brent Crude dropped to around $78 per barrel. This follows a significant rise on Monday, when prices exceeded $80 after gaining 11% since Iran launched missiles at Israel last week.
The “war premium” has begun to fade, especially after the recent price rally and the resumption of business activities in China following the Golden Week holiday.
Upon returning from the holiday, Chinese officials expressed confidence that the country’s economy, the second-largest in the world, would meet its growth forecasts for the year. However, they did not announce any new measures to support the economy or boost oil demand, disappointing traders and speculators.
Warren Patterson and Ewa Manthey, commodities strategists at ING, noted, “China’s National Development and Reforms Commission (NDRC) failed to introduce any new supportive measures. Without such policy support, an economic slowdown could keep China’s oil demand low in the short to medium term.”
Additionally, the resumption of oil production and exports in Libya after a month-long halt due to political issues has contributed to the decline in prices.
Oil brokerage PMV commented in a note on Tuesday, “Oil can only rise so much based on perceptions without actual supply disruptions.”
They also added, “The geopolitical risk premium has an unclear and unpredictable expiration date. If this premium fades and is not replaced by real supporting factors, such as a tangible supply shortage due to the Middle East conflict, the price increase will not be sustainable.”
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