Oil prices rose Monday, reversing some of last week’s plunge of more than 7%, as alarm about the slowdown in China‘s economy and easing fears of supply disruptions in the Middle East balanced some of the factors that have driven falling prices so far.
At 1308 GMT, Brent crude futures rose $1.10, or 1.51%, to $74.16 per barrel. U.S. West Texas Intermediate (WTI) crude also gained, advancing $1.26, or 1.82%, to $70.48 per barrel. The recovery came after the biggest weekly losses suffered by Brent and WTI since early September, at 7% and 8% respectively in each, following weaker economic growth in China and reduced geopolitical risks around the Middle East.
Since it has become the world’s biggest oil importer, China has been in everyone’s focus amid some economic woes. On Monday, Beijing cut its benchmark lending rates as part of broad stimulus measures aimed at resuscitating economic growth. That follows data last week showed that the economy in China expanded at its weakest in over seven quarters during the third quarter, casting concern on oil demand going forward.
Saudi Aramco Chief Executive believes that hope is still there for China as a consumer. According to him, recent measures adopted by the government to increase growth, along with shifts in demand between jet fuel and liquid-to-chemicals, will improve market conditions.
Geopolitical factors also helped prop up oil prices. Increasing tensions in the Middle East, combined with what UBS analyst Giovanni Staunovo called positive statements by Aramco’s CEO on crude demand, propelled it Monday.
According to the U.S. Energy Information Administration, U.S. oil production jumped to a record 13.5 million barrels per day for the week that ended Oct. 11, increasing by 100,000 barrels per day, while such strong production levels were witnessed in global markets during times when there was a lot of uncertainty.
Relatedly, US negotiator Amos Hochstein was supposed to meet with Lebanese officials in Beirut to discuss conditions that should make way for a possible truce between Israel and Hezbollah. The air campaign of Israel against Hezbollah’s financial assets adds another layer of complexity to the geopolitical landscape of the region.
The energy market is sure to keep developments in China’s economic policies and the unfolding Middle East situation in sharp view as these will probably make them instrumental influences on oil prices in the coming weeks.
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