Oil prices rose by over 1 percent on Thursday, nearly offsetting losses from the previous session as tensions in the Middle East regained attention ahead of the U.S. election, despite a mixed report on U.S. fuel inventories.
Brent crude futures increased by 95 cents, or 1.27 percent, reaching $75.91 at 0302 GMT, while U.S. West Texas Intermediate crude futures climbed by $1, or 1.41 percent, to $71.77, amid ongoing concerns regarding supply due to the ongoing tensions in the Middle East.
So far this week, oil prices have surged nearly 4 percent, helping to recover from last week’s decline of over 7 percent driven by fears about demand from China and diminishing worries about supply disruptions from the Middle East. Phillip Nova’s Sachdeva noted that the current volatility, fueled by an upcoming critical week for the U.S. election and the Federal Reserve’s policy decision, is likely to result in greater fluctuations, even with supplies remaining robust.
U.S. crude inventories increase
In the meantime, U.S. crude inventories increased by 5.5 million barrels last week, according to a report from the U.S. Energy Information Administration on Wednesday. This figure was significantly higher than analysts’ predictions of a 270,000-barrel rise, as indicated by a Reuters poll.
Focus on PMIs in the U.S. and EU
Attention on Thursday also turned to the key purchasing managers’ index (PMI) readings from the eurozone and the U.S., which could provide insights into the health of the world’s largest economies. Eurozone activity is anticipated to remain in contraction, while U.S. activity is expected to be supported by a strong services sector.
Any indication of resilience in the U.S. economy could increase expectations for a slower pace of interest rate cuts by the Federal Reserve, a sentiment that has negatively impacted oil markets in recent weeks. Strength in major global economies could enhance crude demand, although sluggish growth in China, the top oil importer, may offset this positive outlook.
Market reaction to Middle East tensions
On Tuesday, oil prices dipped as the leading U.S. diplomat escalated efforts to promote a ceasefire in the Middle East, while slowing demand growth in China continued to pressure the market. Brent crude futures for December delivery fell by 19 cents, or 0.3 percent, settling at $74.10 a barrel by 03:50 GMT. U.S. West Texas Intermediate crude futures for November delivery decreased by 18 cents to $70.43 a barrel on its last trading day as the front month. The more actively traded December West Texas Intermediate futures dropped by 14 cents, or 0.2 percent, to $69.90 per barrel.
Both Brent and West Texas Intermediate had risen nearly 2 percent on Monday, recovering some of the more than 7 percent drop experienced the previous week. The ongoing conflict in the Middle East continues to keep the market on high alert regarding potential supply disruptions.
By 5:22 GMT, Brent crude futures had gained 0.53 percent to $73.45 per barrel, while U.S. West Texas Intermediate crude rose by 0.66 percent to $69.68 a barrel. Last week, Brent fell by more than 7 percent, and U.S. West Texas Intermediate crude dropped around 8 percent, marking the most significant weekly decline since September 2.
Read more: Oil prices slide amid Middle East tensions, Chinese demand concerns
China’s economic measures
On Monday, China announced a reduction in benchmark lending rates, following earlier cuts to other policy rates last month. This decision is part of a broader stimulus strategy aimed at rejuvenating the economy. This announcement followed data released on Friday indicating that China’s economy expanded at its slowest pace since early 2023 in the third quarter, raising concerns about oil demand.
Future demand outlook
Despite recent stimulus measures from Beijing, the head of the International Energy Agency (IEA) suggested that China’s oil demand growth may remain weak in 2025, as the world’s second-largest economy transitions to electric vehicles and experiences slower growth. IEA Head Fatih Birol warned that the sluggishness in China, the top oil importer, will continue to impact global oil demand in the coming years.
Birol’s comments, made in an interview with Bloomberg, followed the IEA’s recent downgrade of its demand growth forecast due to concerns over China. Last week, the Organization of the Petroleum Exporting Countries (OPEC) also reduced its global oil demand forecast.
While China remains the largest oil importer and faces a prolonged economic downturn expected to reduce its crude appetite, increased adoption of electric vehicles is also anticipated to suppress fuel demand. Nevertheless, Saudi Aramco maintains a “fairly bullish” outlook on China’s oil demand, particularly in light of the government’s stimulus initiatives aimed at promoting growth, as stated by the company’s leader on Monday.
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