Crude oil prices experienced a decline, reversing some of the gains made on Monday as traders shifted their focus back to concerns regarding demand from China. Earlier in the trading session, Brent crude oil briefly surpassed $80 per barrel for the first time in months, following a series of five consecutive days of price increases driven by escalating tensions between Israel and Iran.
However, the so-called “war premium” appears to be diminishing rapidly. Market participants are reportedly reluctant to await Israel’s response to last week’s missile attack from Iran, with increasing time between the attack and potential retaliation leading to further weakening of oil prices. This trend is reminiscent of earlier events in the year involving the Middle East.
With concerns over the geopolitical situation in the Middle East waning, traders have refocused their attention on the key issue influencing oil prices: demand from China. There were expectations for the Chinese government to announce additional stimulus measures during a highly anticipated briefing by Beijing’s economic planner. These expectations persisted despite a recent announcement of stimulus initiatives by the Chinese authorities.
“Crude is not getting the love from China that Chinese equities are,” said Vishnu Varathan, head of Asia economics and strategy for Mizuho Bank. “Perhaps because the path of least resistance for the liquidity deluge is to the equity markets.”
Despite the price retreat observed today, some analysts attribute the decline to a reevaluation of risks related to potential oil supply disruptions in the Middle East. “Geopolitical tensions in the region continue, but there has been a recent reduction in exposure based on expectations that any energy supply disruptions may be more controlled,” stated IG marketing strategist Yeap Jun Rong in an interview with Reuters.
Furthermore, some experts argue that it would be counterproductive for Israel to disrupt oil supplies, both regionally and globally, particularly in the lead-up to the U.S. elections. This perspective indicates a likelihood of a moderate response from Israel to Iran’s provocations rather than a severe escalation.
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