Oil Prices Rally Amid US Political Unrest and Middle East Tensions
This Monday saw oil prices recover, supported by a confluence of political uncertainties in the U.S. and escalating tensions in the Middle East, which helped counterbalance the downward forces exerted by a strengthening dollar and diminishing demand from China, the world’s largest oil importer.
Despite the dollar’s strength following an assassination attempt on a U.S. presidential candidate, oil prices managed a rebound. Analyst Tony Sycamore from IG commented, “The uncertainty prompted by this weekend’s events could profoundly affect the nation as elections approach.”
Middle East Instability and OPEC+ Cuts Influence Oil Prices
The already tense situation in the Middle East worsened as negotiations aimed at resolving the Gaza conflict were abruptly halted, intensifying market uncertainty. Concurrently, a significant Israeli military action resulted in numerous casualties, adding to the region’s instability. This situation has maintained a high geopolitical risk premium on oil. Moreover, OPEC+ commitments to curtail supply with Iraq pledging to address overproduction issues have provided additional support to oil prices.
Economic Slowdown in China Impacts Demand
In contrast to the political upheavals boosting oil prices, economic signals from China paint a grimmer picture. The first half of the year saw a 2.3% decrease in China’s crude oil imports due to reduced demand and shrinking refinery output, exacerbated by economic deceleration and ongoing property sector challenges. “The fundamentals are supportive, but the weakening demand from China is becoming a significant concern,” stated ING analyst Warren Patterson. Additionally, the latest data from Chinese customs highlighted a 3.7% drop in refinery throughput, marking a low for the year. As these economic headwinds persist, there is an anticipation that Beijing might introduce further economic stimuli.
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