Oil prices witnessed a significant drop on Monday, driven by a reduction in concerns over a potential war in the Middle East. Traders adjusted crude prices by removing the risk premium and shifting their focus back to demand, which is anticipated to weaken in the upcoming months. Brent oil futures set to expire in December decreased by 4.1 percent, closing at $72.97 a barrel, while West Texas Intermediate crude futures fell 4.2 percent to $68.76 a barrel by 19:57 ET (23:57 GMT). Both contracts approached their lowest levels since early October.
Economic data ahead
In addition to the Middle East situation, this week will see a series of crucial economic indicators that may provide insights into global oil demand. Gross domestic product data from both the U.S. and the Eurozone is expected soon, alongside the PCE price index—an inflation measure favored by the Federal Reserve. Additionally, data from China’s purchasing managers index, the world’s largest oil importer, will be released later this week, following a series of major stimulus announcements from the country over the past month.
Recent market trends
On Friday, oil prices saw a modest increase, preparing for a positive weekly close amid ongoing concerns about rising tensions in the Middle East, which have kept a risk premium in the market. Traders remained cautious about the possibility of escalating conflict that could disrupt supply from the region. Furthermore, U.S. diplomatic efforts to negotiate a ceasefire have so far made limited headway. By 21:04 ET (01:04 GMT), Brent crude futures for December delivery rose by 0.4 percent to $74.70 per barrel, while West Texas Intermediate futures increased by 0.5 percent to $70.55 per barrel.
Weekly gains and market dynamics
Both Brent and West Texas Intermediate futures recorded weekly gains of between 1 percent and 2 percent, recovering somewhat from earlier losses in October. However, a more robust recovery in crude prices was constrained by data showing a larger-than-expected increase in U.S. inventories, indicating a loosening supply in the world’s largest fuel-consuming nation. Moreover, the strength of the dollar affected crude prices, as ongoing concerns about a slower pace of interest rate cuts by the Federal Reserve influenced traders’ preferences for the greenback.
Throughout the week, oil prices fluctuated, largely driven by speculation surrounding the Middle East conflict. Israel’s stern warnings against Iran and U.S. officials’ ongoing diplomatic efforts to negotiate a ceasefire, particularly in light of the upcoming 2024 presidential elections, have kept the market on alert.
Focus on China’s stimulus measures
Recent weakness in the oil market has primarily stemmed from concerns about declining demand from China, the top oil importer. Although various stimulus measures have been announced, traders have expressed disappointment over the lack of specific details regarding their timing and scale, especially concerning fiscal initiatives. Additionally, the Standing Committee of the National People’s Congress is set to meet in November to discuss plans for increased fiscal spending—a meeting that was rescheduled from late October.
Market movements on Thursday
On Thursday, October 24, oil prices rose by over 1 percent, nearly recovering losses from the previous day as renewed tensions in the Middle East captured attention ahead of the U.S. elections, despite mixed signals from U.S. fuel inventory reports. Brent crude futures climbed 95 cents, or 1.27 percent, reaching $75.91 at 0302 GMT, while West Texas Intermediate crude futures increased by $1, or 1.41 percent, to $71.77, amid ongoing supply concerns tied to Middle Eastern tensions. For the week, oil prices have risen nearly 4 percent, bouncing back from a more than 7 percent drop the week prior, driven by fears regarding demand from China and easing concerns over supply disruptions in the Middle East. Phillip Nova’s Sachdeva noted that the current volatility, influenced by the upcoming U.S. election and Federal Reserve policy decisions, is likely to result in further price fluctuations even as supply remains stable.
U.S. crude inventory update
Meanwhile, U.S. crude inventories rose by 5.5 million barrels last week, according to the U.S. Energy Information Administration, significantly surpassing analysts’ expectations of a 270,000-barrel increase, as reported by Reuters.
Market reactions to tensions
On Tuesday, oil prices dipped as U.S. diplomats intensified their efforts to broker a ceasefire in the Middle East, while slowing demand growth in China continued to weigh on the market. Brent crude futures for December delivery fell by 19 cents, or 0.3 percent, settling at $74.10 per barrel by 03:50 GMT, while West Texas Intermediate futures for November delivery decreased by 18 cents to $70.43 per barrel on its last trading day. The more actively traded December West Texas Intermediate futures dropped by 14 cents, or 0.2 percent, to $69.90 per barrel.
Despite these declines, both Brent and West Texas Intermediate saw nearly 2 percent gains on Monday, recovering part of the over 7 percent drop from the previous week. The ongoing conflict in the Middle East continues to keep the market alert to potential supply disruptions. As of 5:22 GMT, Brent crude futures had gained 0.53 percent to $73.45 per barrel, while West Texas Intermediate rose by 0.66 percent to $69.68 per barrel, following a significant decline of over 7 percent for Brent and approximately 8 percent for West Texas Intermediate the prior week—the largest weekly drop since early September.
For more news on markets, click here.
