KEY POINTS
- Oil prices fell by 2% as global demand concerns rise, despite tensions in the Middle East.
- Comments from Israel’s government further impacted market sentiment.
- Economic concerns in major markets like China continue to weigh on oil demand forecasts.
Oil prices declined by 2% on Monday because of weak demand across the globe despite the conflicts in the Middle East. The latest decline came after comments from Israel’s government that affected the energy market and a slowdown in demand due to economic problems in major markets such as China.
WTI crude oil was trading at $85.97 a barrel and Brent crude at $89.66 a barrel during Monday’s trading. The 2% drop is a continuation of a volatile period for oil, and traders are keen on both economic and political events.
Demand concerns affect oil markets
The decline in oil prices is mainly attributed to concerns over slowing demand in the global largest economies. Information on the Chinese economy, which is the second largest consumer of oil in the world, has been disappointing, raising questions about lower oil consumption. At the same time, in Europe and the United States, the threat of a decline in economic activity is also causing concern about future oil demand.
The situation in China remains tense, economic growth rate is decreasing and industrial production is in decline. They fear that if the Chinese economy remains weak, it will lower the global oil demand and therefore put pressure on the prices down. The global oil market relies on high consumption from major industrial countries such as China and a decline in the consumption rate could affect many.
To this, there is apprehension that interest rate increases in the U.S. and Europe may lead to more contraction of the economy and therefore less demand for oil. Higher interest rates are known to decrease business activity and therefore decrease energy use.
Political instability continues to keep the markets unpredictable
Nevertheless, the inflation rate in gold has been slightly reducing over recent year’s geopolitical instabilities in the Middle Eastern countries are other issues that complicate the situation. Existing militant turmoil particularly between Israel and Hamas makes it produce concern towards disruptions in the supplies of oil. However, Israel’s government pointed out that the current conflict was not expected to impact the overall oil market, which helped to calm investors, according to Reuters.
Oil and gas prices remain volatile because the Middle East is a vital source of oil production and any hint at disruption of supply may cause a change in prices. Present conflict has not affected this aspect of infrastructure, but traders are faced with changes in supply outlook given the escalation of this current conflict.
Future outlook: balancing demand and supply
The oil market remains a volatile one as traders balance demand risks with supply issues. According to market analysts, demand factors may continue to put a lid on oil prices, but any major geopolitical flare-up in the Middle East could push up prices.
At the same time, the OPEC+ members have gone on with their output cuts in a bid to prop up prices through demand restrain. Saudi Arabia especially has kept to the production slide, lowering the stock of crude oil supplied to the market. Nevertheless, these reductions are not enough to provide a clear picture of oil prices as long as the demand side remains a problem.
Analysts expect further fluctuation of oil prices in the following months since the global economic situation stays unstable. A lot will depend on how the major economies will manage their current problems and whether geopolitical factors will worsen.
