Oil fell on Wednesday as weak economic data in China, the world’s biggest crude importer, weighed on demand sentiment, but prices are set for their first monthly rise since September as escalating conflicts in the Middle East raise supply concerns.
March Brent crude futures due today were down 27 cents, or 0.3%, at $82.60 a barrel as of 04:41 GMT. The more actively traded April contract fell 26 cents to $82.24.
West Texas Intermediate (WTI) crude oil futures fell 23 cents, or 0.3%, to $77.59 a barrel.
Manufacturing activity in China, the world’s second-largest economy and oil consumer, contracted for a fourth consecutive month in January, an official survey showed on Wednesday, showing economic momentum weakening at the start of 2024.
Many analysts, including the Organization of the Petroleum Exporting Countries (OPEC), predict that the increase in oil demand in 2024 will be based mainly on Chinese consumption, and signs of a slowing economy weaken these outlooks.
China’s manufacturing sector remains under pressure due to a weak domestic recovery and weak external demand.
But both oil indicators are set to rise this month as the Israel-Hamas war escalates into a naval conflict between the United States and pro-Iranian Houthi militants in the Red Sea, disrupting shipping routes for oil and gas tankers and increasing delivery times and costs. Other Iranian militant groups in the region have also struck US forces in Iraq, Syria, and Jordan.
Thus, both Brent and WTI are expected to increase by over 7% in January.
Yet the widening conflicts in the Middle East have not halted actual production. Concerns about a drop in oil demand limited gains from geopolitical concerns.
The main problem with being bullish on crude oil is that the technical picture remains bearish and the market has not yet realized the impact of recent events, including last week’s deadly drone attack on US troops near the Jordan-Syria border.
Biden said he had decided how to respond to the attack, without providing further details, but added that he wanted to avoid a broader war in the Middle East.
Regarding the Israeli-Palestinian conflict, Hamas said on Tuesday that it had received and was working on a proposal to bring a ceasefire to the conflict in Gaza. This appears to be the most serious attempt at peace since the war’s first and only brief ceasefire, which fell apart in November.
However, the market is worried about whether the ceasefire in Gaza will stop the Houthis’ attacks in the Red Sea.
US inventory data from the American Petroleum Institute (API) is mixed. Crude oil inventories fell by 2.5 million barrels in the week ending January 26, according to API figures.
Gasoline stocks increased by 600,000 barrels, while distillate stocks fell by 2.1 million barrels.
EIA data on U.S. government oil inventories will be released later Wednesday.