Crude oil prices began the new week with a loss earlier today, with a renewed focus on demand in China and the United States weighing on benchmarks.
In mid-morning Asian trade, both Brent and West Texas Intermediate had shed close to 1% following news that gasoline demand in the U.S. might fall to the lowest in two decades next year and that Chinese refiners had asked for lower volumes of Saudi crude for December, Reuters reported.
While the forecast about U.S. gasoline demand might indeed be conducive to a more bearish behavior among traders, the reason Chinese refiners have asked for lower volumes of Saudi oil does not necessarily indicate lower demand for fuels. What it certainly does indicate is that refiners have run out of fuel export quotas.
Some fresh economic data out of China also contributed to the bearish sentiment among oil traders. Consumer prices for October booked a decline, suggesting lower demand in the country, and reinforcing concern about the economy growing more slowly and unevenly than expected.
Fears of a supply disruption in the Middle East, meanwhile, have largely dissipated, even after Iran warned last week that an escalation in the conflict between Israel and Hamas was inevitable.
“Due to the expansion of the intensity of the war against Gaza's civilian residents, expansion of the scope of the war has become inevitable,” Iranian media quoted Iran’s Foreign Minister Hossein Amir-Abdollahian as telling his Qatari counterpart Sheikh Mohammed Bin Abdulrahman Al Thani in a telephone conversation on Thursday.
"Investors are more focused on slow demand in the United States and China while worries over the potential supply disruptions from the Israel-Hamas conflict have somewhat receded," a senior Nissan Securities analyst told Reuters.
“We believe that the scale of the sell-off in oil is exaggerated given that fundamentals are still tight at least in the short term,” ING analysts Warren Patterson and Ewa Manthey wrote in a note on Friday. “However, fundamentals are not as bullish as originally anticipated with Russian oil exports edging higher, whilst refinery margins have also been weakening.”
By Irina Slav for Oilprice.com
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surprised no bear
The market is now in a state of calm before the storm. While the war premium in the aftermath of the Hamas-Israel conflict has fizzled out after it became apparent that Iran and its allies have no intention of getting involved in the conflict, the storm could come from another direction.
The deployment of formidable US forces in the Eastern Mediterranean and the Gulf region and talk by Israeli leaders of cutting the head of the snake in reference to Iran give suggest that the United States and Israel are looking for an excuse or could invent one to attack Iran and destroy its nuclear plants. In so doing they believe that they could solve the nuclear issue with Iran once for all or at least delay Iran’s acquiring nuclear weapons for years.
Were it to happen, Brent crude price could hit $150 a barrel as a result of a disruption of the oil flow through the Strait of Hormuz.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert