Oil Prices Begin to Climb as Traders Refocus on the Middle East
After losing virtually all gains made last week on Tuesday, oil prices started Wednesday’s trade with hesitant gains as traders refocused on the situation in the Middle East.
The slump on Tuesday followed news that consumer prices in China had gone up less than expected, suggesting sluggish consumer demand and after the International Energy Agency revised down its global oil demand outlook for 2024 for the third time in a row.
At the same time, the Washington Post reported that Israel had told the United States it would not target Iranian oil infrastructure in its retaliatory attack, which immediately canceled the wartime premium to oil prices. However, Israel later said that it would make its own decisions with regard to the Iran strike, opening the door to speculation that it might yet change its mind about potential targets.
“Prices still lack a bullish catalyst for now, as market participants fade the risks of disruptions in Middle East energy supplies, while China’s fiscal stimulus efforts seem to lack clarity,” IG analyst Yeap Jun Rong told Bloomberg.
A week ago, when it was still unclear whether Israel would target oil infrastructure in its retaliatory attack, ING’s Warren Patterson noted that the effect of such a hypothetical attack on global oil markets would depend on whether Israel struck upstream assets or downstream assets. In the former case, the analyst said, the effect would immediately be bullish.
In the latter scenario, the effect could be in fact bearish because refinery damage would mean Iran would have more crude for export. Yet the very fact of an Israeli attack on an Iranian refinery would be bullish for oil prices because it would constitute further escalation in the conflict.
Meanwhile, traders are awaiting details about China’s latest stimulus plans after a government update on Sunday failed to specify the size of that additional stimulus, which disappointed traders and prompted them to sell oil, pressuring prices from the start of the week.