Oil prices extended losses on Wednesday as concerns about global demand due to weak economic momentum in China and a possible increase in U.S. commercial inventories were more worrisome than rising tensions in the Middle East.
June Brent futures were down 40 cents, or 0.44%, at $89.62 a barrel as of 06:32 GMT, while May WTI crude oil futures were down 48 cents, or 0.56%, at $84.88 a barrel.
Oil prices have softened so far this week as economic headwinds weigh on investor confidence, capping gains from geopolitical tensions and as the market watches how Israel might respond to an Iranian attack over the weekend.
At a time when oil prices are highly sensitive to geopolitical risks, the past week has seen some wait-and-see consolidation as Israel’s response will determine whether there will be a broader regional conflict that could significantly impact oil supplies.
This short-term weakness in oil prices reflects some expectations that tensions may still be kept under control and that other major oil producers such as Saudi Arabia may step in to cushion any global supply shocks.
The economy in China, the world’s largest oil importer, grew faster than expected in the first quarter, but several indicators for March, including real estate investment, retail sales and industrial production, showed domestic demand remained weak, weighing on overall momentum.
The overnight increase in US crude oil stocks and mixed economic data from China also brought some reservations, while short-term overbought techniques aimed at taking profits also provided some support.
US crude oil inventories rose more than analysts expected last week, according to market sources citing figures from the American Petroleum Institute (API) on Tuesday.
Official data from the Energy Information Administration (EIA), the US statistical arm, will be released at 1430 GMT on Wednesday.
The third meeting of Israel’s war cabinet, scheduled for Tuesday to decide on the response to Iran’s first direct attack, was postponed until Wednesday as Western allies recommended swift new sanctions on Tehran to persuade Israel from detering the escalation.
But analysts do not expect Iran’s spectacular missile and drone show against Israel to lead to dramatic sanctions on Iran’s oil exports from the Biden administration.
Meanwhile, the US government may reimpose oil sanctions on Venezuela on Thursday, which could tighten supply in the market.
Analysts say that prices may move sideways under current market conditions.
In the short term, WTI price movements are likely to remain stuck in a sideways range between $83-88 due to conflicting factors such as China’s disappointing retail sales in March and the geopolitical risk premium still remaining intact.
