Oil prices experienced a decline on Wednesday due to subdued economic activities in China, the top crude importer, impacting market sentiment.
Nonetheless, oil is on track to record its first monthly increase since September, spurred by escalating conflicts in the Middle East that have heightened concerns over supply disruptions.
Brent crude futures for March dropped 31 cents to $82.56 a barrel, and the more actively traded April contract decreased by 29 cents to $82.21. Meanwhile, U.S. West Texas Intermediate crude futures saw a 25-cent reduction, settling at $77.57 a barrel.
China’s manufacturing sector continued to contract for the fourth consecutive month in January, as indicated by an official survey, pointing to a weakening economic momentum as 2024 begins.
This downturn in China’s economy, a major oil consumer, casts doubt on earlier predictions by analysts and the Organization of the Petroleum Exporting Countries (OPEC) that anticipated oil demand growth in 2024 to be driven largely by China.
Despite these economic challenges, oil prices are poised to climb this month due to the intensification of the Israel-Hamas conflict into a naval skirmish in the Red Sea involving the U.S. and Iran-aligned Houthi militants, which has disrupted shipping routes for oil and natural gas tankers, increasing delivery costs.
Additionally, other Iranian-backed groups in the region have launched attacks on U.S. forces in Iraq, Syria, and Jordan.
However, these Middle East tensions have not significantly impacted oil production, and the concerns over reduced oil demand growth have somewhat tempered the price increases resulting from these geopolitical issues.
Market analysts, including Tony Sycamore from IG, caution against adopting a strongly bullish stance on crude oil due to a bearish technical outlook that has yet to align with recent events, including a recent drone attack on U.S. troops near the Jordan-Syria border.
In response to the attack, U.S. President Joe Biden stated he had decided on a course of action but emphasized his desire to avoid a broader conflict in the Middle East.
Amidst the ongoing Israel-Palestinian conflict, Hamas disclosed that it was reviewing a ceasefire proposal, marking a significant peace effort since the brief and unsuccessful ceasefire in November.
