Oil prices dipped on Tuesday, retreating from recent gains as concerns about escalating tensions in the Middle East eased. Fears of supply disruptions in the region also subsided, contributing to the decline.
Brent crude futures dropped 0.7 percent, or 53 cents, to $77.13 per barrel by 03:20 GMT. Meanwhile, U.S. West Texas Intermediate crude futures, expiring on Tuesday, fell 0.7 percent, or 50 cents, to $73.87 per barrel. The more actively traded second-month contract also declined 0.7 percent, or 49 cents, to $73.17 per barrel.
The decline followed a 2.5 percent drop in Brent and a 3 percent decrease in WTI on Monday.
Yeap Jun Rong, market strategist at IG, suggested that oil prices were being negatively impacted by geopolitical developments in the Middle East and concerns about China’s oil demand. He cited weak Chinese economic data, which raised doubts about the country’s future oil consumption.
Read more: Oil prices sink as China’s economic slowdown fuels demand concerns
Libya’s Sharara field production resumes
Adding to the easing of supply concerns, production at Libya’s Sharara oilfield has increased to approximately 85,000 barrels per day, aiming to supply the Zawia oil refinery, according to two engineers working at the field.
Libya’s National Oil Corporation (NOC) had declared force majeure on oil exports from the field on August 7 after a blockade by protesters disrupted production at the 300,000-bpd field.
In the United States, crude stockpiles were projected to have decreased by 2.9 million barrels last week, a preliminary Reuters poll indicated on Monday.
China’s economic woes weigh on oil
On the demand side, anxieties about China’s economic challenges continued to weigh on oil prices. After a sluggish second quarter, the world’s second-largest economy experienced further momentum loss in July. New home prices fell at their fastest pace in nine years, industrial output slowed, export and investment growth dipped, and unemployment rose.
ING analysts, in a note to clients, acknowledged that concerns about Chinese oil demand persisted. They noted that recent data releases further supported the view that Chinese oil demand was weakening.
ING analysts indicated that trade and industrial output figures from the previous week suggested a continued decline in apparent oil demand during July. They added that these concerns were causing speculators to remain cautious about entering the market.
Fed rate decision in focus
Investors also awaited indications regarding the U.S. Federal Reserve‘s plans for the next interest rate decision.
A slim majority of economists polled by Reuters predicted that the Fed would cut interest rates by 25 basis points at each of the remaining three meetings in 2024, while deeming a recession unlikely.
Rate cuts could reduce borrowing costs and potentially boost oil demand in the world’s top oil-consuming country.
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