Oil Prices React to Geopolitical Tensions and Chinese Demand Concerns

Global oil prices experienced a decline on Monday, with Brent futures slipping below $82 a barrel, driven by a combination of persistent geopolitical concerns in the Middle East and uncertainties about softening demand in China.

As of 1222 GMT, Brent futures were down 31 cents at $81.77 a barrel, while US West Texas Intermediate (WTI) slipped 34 cents to $77.67.

The week concluded on a bearish note for both benchmarks, influenced by less-than-optimistic Chinese data indicating weaker demand from the leading crude importer. Brent closed down 1.8%, maintaining a position above $80 a barrel for just over a month, while WTI saw a 2.5% decrease.

Analyst Vandana Hari of Vanda Insights highlighted the oil complex’s cautious stance amid ongoing geopolitical conflicts, particularly the situation in Gaza. Concerns about Israel’s military plans, coupled with a lack of progress in ceasefire talks during the Muslim holy month of Ramadan, contribute to the uncertainty.

Hopes for a Gaza ceasefire seemed to stall, with no set dates for further meetings with mediators in Cairo, according to a Hamas official. Over the weekend, the Red Sea witnessed the downing of dozens of drones by US, French, and British forces in response to Houthi attacks on a bulk carrier and US destroyers.

On the demand side, China’s crude oil imports showed a rise in the first two months of the year compared to 2023, but the pace was weaker than in previous months, reflecting a broader trend of softening purchases by the world’s largest crude buyer.

Mixed signals from US data last week also played a role, with accelerated job growth in February but a rise in the unemployment rate and moderation in wage gains. This kept the possibility of a June interest rate cut on the table. Investors are now awaiting US inflation data scheduled for Tuesday.

Supply dynamics are influenced by OPEC and its allies (OPEC+), who agreed to extend voluntary oil output cuts of 2.2 million barrels per day into the second quarter. Analysts at ANZ Research noted that this extension could tighten the market as demand recovers from its seasonal lull.