Key points
Last week marked the biggest weekly decline in crude since early September, as China’s slowing economic growth raised concerns about future demand.
The 7% drop in Brent and 8% fall in WTI reflect traders’ reactions to the world’s second-largest economy showing its slowest growth rate since early 2023.
See: Crude oil (WTI) shows a downward trend from a peak of 78.441 to around 69.343, with weakening momentum on the MACD as seen on the VT Markets app.
These figures weigh heavily on the broader sentiment for oil demand. Furthermore, with China cutting benchmark lending rates as part of its stimulus measures, we can expect an ongoing response in efforts to revive its struggling economy.
On the geopolitical front, U.S. President Joe Biden’s comments about a possible reduction in tensions between Israel and Iran helped to reduce the risk premium on oil last week.
However, the situation remains fragile, especially with Israel preparing military action in Beirut against Hezbollah-linked targets. Any escalation could once again shift market focus back to supply-side risks.
Moreover, U.S. oil and gas firms continue to trim production, as shown by the latest Baker Hughes report. The active rig count dropped by one, making it the fourth decline in five weeks.
Although modest, this decline reflects a more cautious approach by U.S. producers, who may be anticipating lower demand in the near term, especially as China’s economic issues remain unresolved.
Moving forward, oil prices may see some consolidation this week as market participants assess China’s next economic moves and monitor any developments in the Middle East.
If China’s demand continues to underwhelm and geopolitical tensions flare again, we could witness further downward pressure on oil.
However, any unexpected supply disruptions or further easing from Beijing could lend support to the market.
See also: Oil Prices Fall with China’s Slowing Economy
For now, a steady price recovery looks unlikely unless we see clearer signs of economic growth and a resolution to geopolitical tensions.
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