After crude oil prices recorded their highest opening in more than two months, they pulled back and fell below last week’s closing levels, by approximately 0.5% for both crude oils.
The price of West Texas Intermediate (WTI) crude oil fell from about $79 per barrel at the opening, i.e. a gain of about 2.4%, to about 77.65 at approximately 9:30 a.m. GMT.
At the same time, Brent crude fell from $83.88 per barrel at the opening to approximately 82.50.
crude oil price gains initially came with the reaction to the unprecedented escalation in the Middle East with the attack on a US military base in Jordan, but concerns about the health of the Chinese economy seem to still be clouding sentiment.
Yesterday’s escalation of military actions exceeded the red lines drawn by the United States, which included the lives of its soldiers and citizens. This would put the US administration in further embarrassment at a very sensitive time before the presidential elections this year.
If steps were taken to respond, this may generate more acts of revenge in the region, which could fuel fears that the conflict would get out of control, which could therefore deepen concerns about the safety of oil supplies.
On the other hand, the US administration may choose to contain the escalation and carry out a limited and local response, for fear of entering the electoral race with more internal pressure to end the raging wars.
In any case, it appears that oil markets are still looking more worriedly at the future of oil demand from China than any other geopolitical factor.
Last week, we witnessed talk of more support provided to the private sector in China to fuel demand, in addition to supporting the declining stock market.
The Chinese President indicated that the approach will be to support a healthier economy – such as supporting high-value sectors and advanced manufacturing activities – even if it comes at the expense of sacrificing a rapid recovery of economic growth. In other words, the support packages may take time for their impact to crystallize and be reflected in the form of further economic growth, which in the last three years has recorded the slowest pace in decades.
What may also enhance optimism in oil markets is the continued acceleration in growth of the US economy. This is what we witnessed through a set of data last week, whether through stronger-than-expected growth in the last fourth quarter of last year or accelerating growth in the expansion of services and manufacturing activities.
On the other hand, the continued contraction of economic activities and negative sentiment in the Eurozone and the European Union, which we also witnessed through last week’s series of weak data, may continue to put pressure on energy market sentiment as a result of weak demand in general.