Forex

Oil Prices Recover Amid Demand and Tensions

Oil prices experienced a rebound on Monday following significant losses in the previous week, marked by a focus on weak global demand and potential supply disruptions in the Middle East. As of 08:15 ET (12:15 GMT), Brent crude rose by 1.7% to $74.27 a barrel, while WTI increased by 2% to $70.06 a barrel. 📈

Last week was particularly tough for the oil market, with Brent crude suffering a decline of over 7% and WTI down approximately 8%, marking the most significant weekly dips since early September. The primary drivers for these declines were concerns over slowing economic growth in China and diminishing risk premiums related to Middle Eastern tensions.

In an attempt to boost its economy, the People’s Bank of China implemented a cut to its benchmark interest rate, part of a broader stimulus approach aimed at reviving economic growth. Despite these measures, data released on Friday revealed that China’s economy expanded at its slowest pace since early 2023 in the third quarter, raising further worries about oil demand. Though the Chinese government introduced targeted stimulus measures over the past month, traders remain skeptical due to a lack of details regarding the scale and timing of these initiatives.

Tensions in the Middle East, particularly the ongoing conflict between Israel and Hamas, continue to influence oil prices significantly. Over the weekend, Israel intensified its military actions against Hamas and Hezbollah in Gaza and Lebanon, with plans to target financial hubs associated with Hezbollah in Beirut. As the Israel-Hamas conflict, which reached a year mark in October, persists, traders have fluctuated the risk premium on oil prices based on developments in the region. However, U.S. efforts to broker a ceasefire have yet to bear fruit.

Despite these geopolitical risks, UBS analysts submitted a bearish outlook for the oil market in a note released on Monday. They indicated that while earlier concerns regarding potential oil supply disruptions due to the Middle East conflict were valid, the direct risks appear to have lessened. UBS maintains a forecast for a balanced oil market by 2025, provided that OPEC+ production cuts remain intact. Notably, they have reduced their global oil demand growth forecast for 2024 by 0.1 million barrels per day, now expecting a growth of only 0.9 million barrels per day due to weaker-than-anticipated demand from China.

With these market conditions, consider your strategy carefully: Sell (in red) if you’re leaning bearish on oil assets.

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