Oil prices fell on Tuesday, extending a more than 1% drop in the previous session on China’s economic outlook, although losses were held by supply fears caused by rising tensions in the Middle East.
March Brent crude futures, which expire on Wednesday, fell 52 cents, or 0.6%, to $81.88 a barrel by 1413 GMT. The more active April contract was down 50 cents, or 0.6%, at $81.33. U.S. West Texas Intermediate crude lost 29 cents, or 0.4%, to $76.49.
Both contracts fell by more than $1 on Monday as a deepening real estate crisis in China fueled concerns about demand in the world’s biggest crude consumer, and a Hong Kong court ordered the liquidation of real estate company China Evergrande Group.
“(The) consequences of a potential collapse in China’s property sector cloud any authoritarian stimulus and will have very negative global shocks,” said PVM analyst John Evans.
Continued conflict in the Middle East, however, prevented further losses.
Washington vowed to take “all necessary actions” to defend its troops after a deadly drone strike in Jordan by Iran-backed militants, the first US military deaths since the start of the Israel-Gaza war, sending markets on edge.
“If US-Iranian tensions increase, especially through direct confrontation, the risk of Iran’s oil supply being adversely affected increases,” Commonwealth Bank of Australia analyst Vivek Dhar said. “Iranian oil exports are likely to be the most vulnerable to potentially greater enforcement of sanctions.”
Iran exported 1.2 million to 1.6 million barrels per day (bpd) of oil through most of 2023, Dhar added, representing 1-1.5% of global oil supply.
“At $82, we estimate that Brent is trading today only about $4 above its fair value, with $2 added to account for increased freight costs,” JP Morgan said on Tuesday, adding that the geopolitical premium made up the rest.
On the supply side, while an OPEC meeting on February 1 is unlikely to bring a decision on the group’s oil policy for April, analysts hope it could shed light on production plans.
Saudi Aramco, in an indication of the future demand outlook, said it had received a directive from the Saudi energy ministry to maintain its maximum sustainable capacity at 12 million bpd and not to continue increasing it to 13 million bpd.
“It may be to save money. But most likely it implies that it does not see a need for this extra oil in the global market,” said SEB analyst Bjarne Schieldrop.
Saudi Arabia is the world’s largest oil exporter.
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Published: 30 Jan 2024, 22:13 IST