Jan 31, 2024: Oil prices experienced a decline on Wednesday, influenced by lackluster economic data from China, the world’s largest crude importer. However, despite this setback, prices are poised for their first monthly gain since September, driven by escalating conflicts in the Middle East that have raised supply concerns.
Brent crude futures for March, set to expire today, dropped 27 cents (0.3%) to $82.60 per barrel by 0441 GMT. The more actively-traded April contract also fell by 26 cents to $82.24. U.S. West Texas Intermediate crude futures declined by 23 cents (0.3%) to $77.59 per barrel.
China, as the world’s second-largest economy and a major oil consumer, reported a fourth consecutive month of contraction in manufacturing activity in January. This official factory survey suggested a slowing economic momentum at the beginning of 2024.
Analysts, including those from the Organization of the Petroleum Exporting Countries (OPEC), had initially anticipated oil demand growth in 2024, primarily driven by Chinese consumption. However, indications of a decelerating economy in China have tempered these outlooks.
Lynn Song, Chief Economist at ING bank, remarked, “The Chinese manufacturing sector remains under pressure amid a weak domestic recovery and poor external demand.”
Despite these concerns, both Brent and West Texas Intermediate (WTI) crude are set to register over a 7% increase in January. The ongoing Israel-Hamas conflict, which has expanded to a naval conflict in the Red Sea involving the U.S. and Iran-aligned Houthi militants, has disrupted oil and natural gas tanker shipping routes, contributing to higher delivery costs. Additionally, other Iranian militant groups in the region have targeted U.S. forces in Iraq, Syria, and Jordan.
However, the widening conflicts in the Middle East have not directly halted oil output. Worries about lower oil demand growth have somewhat offset the gains resulting from geopolitical concerns.
