Global oil prices experienced a marginal uptick on Tuesday, recovering from a more than 1% decline in the previous session, fueled by escalating geopolitical tensions in the Middle East – a major oil-producing region. However, concerns about China’s economic outlook, particularly related to the property crisis involving China Evergrande Group, imposed limitations on the gains.
As of 0734 GMT, Brent crude futures rose by 7 cents, or 0.07%, reaching $82.46 per barrel. Meanwhile, U.S. West Texas Intermediate crude recorded an increase of 15 cents, or 0.31%, at $76.93 per barrel.
Monday witnessed both contracts facing a drop of over $1, primarily influenced by apprehensions related to China’s demand. The Hong Kong court’s order for the liquidation of China Evergrande Group amid a deepening real estate crisis intensified worries about the demand outlook from China, a key global crude consumer.
DBS Bank’s energy sector team lead, Suvro Sarkar, remarked on the oil price dynamics, stating, “Oil price trading above US$80/bbl is pricing in some geopolitical risk premium again as flare-ups continue in the Middle East region. This could fade out within a week or two if there is no strong reaction from the US.” He added that a deterioration into a U.S.-Iran standoff and stricter sanctions could sustain oil prices in the range of $80-$100 per barrel.
Geopolitical concerns arose as the U.S. pledged to take “all necessary actions” in response to a deadly drone attack in Jordan by Iran-backed militants. This incident marked the first U.S. military deaths since the Israel-Gaza war began.
While the Middle East tensions added a geopolitical risk premium to oil prices, concerns about China’s economic outlook, triggered by Evergrande’s liquidation order, acted as a limiting factor. OANDA senior market analyst Kelvin Wong highlighted the potential negative ramifications on stock and property markets in China, which could deepen deflationary risks and impact the demand outlook for oil.
On the supply side, the upcoming OPEC+ meeting on Feb. 1 may not result in an immediate decision on oil policy for April. However, analysts are hopeful for insights into production plans. The state oil company of Saudi Arabia, the world’s largest producer, indicated a directive to maintain its maximum sustainable capacity at 12 million barrels per day, signaling caution about the future demand outlook.
CMC Markets Shanghai-based analyst Leon Li emphasized the need for more fundamental factors to stimulate oil prices, warning of potential downward pressure on WTI crude oil if such factors do not emerge.