Oil Prices Rebound as China PMIs Disappoint Ahead of Fed Meeting
Oil Prices Recover on Lingering Supply Risks
Oil prices made a slight recovery on Tuesday following a turbulent session, driven by ongoing concerns over supply risks. However, gains were limited due to worries about slowing fuel demand in China, the world’s largest crude importer, following weaker-than-expected factory activity data.
By 09:15 ET (13.15 GMT), futures for oil traded 0.7% higher at $82.88 a barrel, while the contract climbed 0.7% to $86.92 a barrel.
Crude Risk Premium Decreases
The crude market experienced significant losses at the beginning of the week, with benchmark prices plummeting nearly 3%. This drop came as the conflict between Israel and Hamas failed to escalate in the oil-rich region, resulting in traders factoring in a lower risk premium for the geopolitical tension.
Initial concerns that the war could involve other Middle Eastern powers and disrupt oil supplies in the region have yet to materialize. However, traders remain cautious about any new developments in the conflict, particularly as Israel has launched a massive ground offensive on Gaza. Despite Friday’s 3% increase, both benchmarks still recorded substantial losses over the course of the week.
Venezuela’s Oil Supply at Risk
Uncertainty surrounding crude supply extends beyond the Middle East. Developments in Venezuela also play a crucial role in the market. Recently, the US decided to ease sanctions against Venezuela in exchange for the promise of fairer elections in 2024. However, a senior court in the country has suspended the results of an opposition presidential primary, casting doubt on whether the sanctions relief will remain in place. This suspension could potentially hinder Venezuela’s plans to increase its oil supply by around 200k b/d.
Chinese PMIs Indicate Weak Economy
The release of purchasing managers index data from China on Tuesday revealed an unexpected contraction in October’s manufacturing sector, while services sector growth significantly slowed down. These figures highlight the challenges faced by Chinese businesses in their recovery efforts despite numerous stimulus measures implemented by Beijing. Furthermore, they raise questions about the extent of Chinese oil consumption growth in the face of deteriorating economic conditions.
Fed Meeting Adds to Market Caution
Market participants are exercising caution ahead of the upcoming Federal Reserve meeting, scheduled for Wednesday. While the central bank is expected to maintain interest rates at their current level, it is anticipated that they will reiterate their commitment to keeping rates higher for a longer period. This scenario could potentially dampen economic growth in the coming months and restrain oil demand as monetary conditions tighten globally.
The American Petroleum Institute will also release its estimate of last week’s US crude stocks, with expectations of a build of 1.6 million barrels.
(Ambar Warrick contributed to this article.)
