By Oil futures experienced a decline early Monday, continuing the significant drop from the previous week. This decline occurred despite a series of retaliatory strikes against Iran-backed militants by a U.S.-led coalition over the weekend.
Analysts suggest that the markets are not convinced that the conflict in the Middle East will escalate in a way that poses a threat to crude supplies. Additionally, traders are closely monitoring Chinese economic data due to concerns about global crude demand.
Here are the details of the current oil prices:
- West Texas Intermediate (WTI) crude for March delivery fell 44 cents, or 0.6%, to $71.84 a barrel on the New York Mercantile Exchange.
- April Brent crude, the global benchmark, was down 36 cents, or 0.5%, at $76.97 a barrel on ICE Futures Europe.
Last week, WTI dropped 7.4% and Brent lost 6.8%, resulting in both grades reaching three-week lows on Friday. This decline was partly influenced by news reports indicating progress towards a cease-fire deal between Israel and Hamas.
U.S. Strikes Iran Paramilitaries and Backed Militias
Late Friday, the United States carried out strikes on numerous Iran paramilitaries and Tehran-backed militias. This action was in response to a drone attack that tragically resulted in the death of three U.S. troops in Jordan over the previous weekend.
U.S. and U.K. Respond to Iran-Backed Houthi Militants
Additionally, the United States and the United Kingdom conducted further strikes against Iran-backed Houthi militants in Yemen. These militants have been targeting shipping in the Red Sea using drone and missile attacks, leading to a significant increase in shipping rates.
Impact on Oil Supply
While the developments in the Red Sea have had an impact on certain physical markets, overall oil supply remains unaffected. In a note, strategists Ewa Manthey and Warren Patterson from ING emphasized the balanced nature of the oil market in the first quarter of 2024. They highlighted that OPEC still has a substantial amount of spare capacity, providing the market with a sense of comfort. However, they cautioned that this could quickly change if tensions begin to escalate in other parts of the Middle East.
Caixin/S&P Global Services Purchasing Managers Index for January
News reports indicate that the Caixin/S&P Global services purchasing managers index for January declined slightly from 52.9 to 52.7. Despite this dip, the index remains within expansion territory, above the threshold of 50.
Conclusion
In summary, the recent strikes by the U.S. on Iran paramilitaries and Tehran-backed militias were a direct response to the drone attack that claimed the lives of three U.S. troops in Jordan. Furthermore, the U.S. and U.K. launched additional strikes against Iran-backed Houthi militants in Yemen. While these incidents have affected certain markets such as shipping rates, the oil supply has not been significantly impacted so far. However, analysts caution that the stability of the market could change if tensions continue to escalate in the Middle East. Additionally, the Caixin/S&P Global services purchasing managers index for January indicates ongoing expansion, although there was a slight decline compared to the previous month.
Oil Prices Affected by China’s Services Activities and Calming of Middle East Tensions
The price of oil had a sluggish start to the week due to the somewhat underwhelming growth in services activities in China. This, combined with a perceived reduction in concerns over potential military conflicts in the Middle East, contributed to the weakened performance of oil.
According to Samer Hasn, a market analyst at XS, the subdued growth in China’s services sector and the calming of fears regarding escalating military actions in the Middle East were key factors behind the recent downturn in oil prices.
While expectations for growth in China’s services sector were not met, market analysts remain cautiously optimistic. There is hope that this slowdown is temporary and that activities will pick up in the near future.
Similarly, the decrease in tensions in the Middle East has had a stabilizing effect on oil prices. Investors are finding some relief, as the likelihood of disruptions in oil production and transportation has decreased for now.
Although these developments may have dampened oil prices in the short term, it is essential to monitor geopolitical risks and global economic conditions moving forward. Any unforeseen events or shifts in market dynamics could potentially impact oil prices once again.
As oil prices continue to fluctuate, market experts and investors will closely observe the ongoing developments in China’s services sector and the Middle East. These factors will play a significant role in determining the future trajectory of oil prices.
It remains to be seen how these factors and other influencers will shape the global oil market. In the meantime, individuals and industries alike should stay informed and prepared for potential changes in oil prices.
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