Oil Prices Stuck Between Fear of Escalation and Ceasefire Hopes
Crude oil prices started trade little changed earlier today after a substantial inventory build in the U.S. surprised traders, adding to bearish mood prompted by the Chinese government’s decision to not issue new economic stimulus measures every week.
Brent crude and West Texas Intermediate remain higher than a week ago but are off the heights they reached towards the end of the week as traders braced for Israel’s response to Iran’s missile attack on military facilities. So far, this response has come only in the form of strikes on Lebanon, which in turn led to media reports of a possible ceasefire.
Reuters reported on Tuesday that Hezbollah had signaled it might be open to a ceasefire with the Israelis and not condition it on a truce in Gaza. The prospect of that leading to an end of the hostilities in Lebanon pressured prices. The API’s estimated U.S. crude oil inventory build of close to 11 million barrels in the week to October 4 did not exactly help oil prices, either.
“The everyday dilemma of ‘Middle Eastern headlines’ moving like a pendulum between ‘ceasefire talks’ and ‘further escalation in attacks’ has been distracting investors from reality … Oil markets are twirled in sentiments of ‘buying the rumor’ and sidelining the real fundamentals that should matter,” Phillip Nova senior market analyst Priyanka Sachdeva told Reuters.
To this, one could add the focus on Chinese oil demand growth and the expectation that the government in Beijing is ready to do anything at all to push this demand higher when in fact it has zero incentive to do so being the world’s largest importer of crude. The Chinese government is indeed seeking to strengthen economic growth but it is quite unlikely to overdo it with less than three months until the end of the year.