Brent dips on concerns over weak oil demand from China

The front-month ICE Brent contract has lost $0.44/bbl on the day, to trade at $78.93/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Escalating tensions in the Middle East have continued to drive up the price of Brent crude. On Monday, Iran-backed Hezbollah launched multiple rockets at Israel's third-largest city, Haifa. Despite the attack, Israel is expected to increase its strikes in Lebanon and send in more troops.

Concerns about the conflict potentially disrupting oil shipments from the Middle East have been supporting Brent futures for some time.

“Brent crude oil surged to its highest levels in more than two months amid mounting concerns of supply disruptions in the Middle East,” Daniel Hynes, senior commodity strategist at ANZ Bank, said.

US President Joe Biden’s comments that Israel has not yet decided how to respond to Iran did little to ease these concerns.

“President Biden’s comments didn’t allay these fears,” Hynes added.

In the US, Hurricane Milton, now a Category 5 storm, is located just north of the Yucatan Peninsula and is heading toward Florida, according to the US National Hurricane Center. This has added further pressure to supply, with Chevron shutting down its Blind Faith platform on Monday. “The threat of supply disruptions from the Gulf of Mexico due to Hurricane Milton further boosted optimism,” noted two analysts from ING Bank.

Downward pressure:

China’s National Development and Reform Commission stated on Tuesday that it is fully confident in meeting its full-year economic targets, but did not announce any new supportive measures. This has raised concerns about slow growth potentially weakening fuel demand in China, putting downward pressure on Brent futures.

“Without policy support, an economic slowdown could keep China’s oil demand subdued in the short to medium term,” according to two analysts from ING Bank.

Libya’s oil production has exceeded 1 million b/d for the first time in two months, following the resolution of a political standoff that had previously restricted output and exports, as reported by Bloomberg. Higher production from Libya has contributed to Brent's downward pull.

Additionally, the American Petroleum Institute (API) is expected to release its US crude stock data later today, with the Energy Information Administration (EIA) set to publish its figures tomorrow. Market participants are closely watching these upcoming reports.

By Tuhin Roy

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