In the midst of escalating concerns over slowing demand in Europe and ongoing supply disruptions in the Middle East due to the Israel-Hamas conflict in Gaza, global oil prices experienced their fourth consecutive day of decline.
Brent crude futures registered a 0.3% drop, or 28 cents, settling at $87.79 per barrel as of 0627 GMT, while U.S. West Texas Intermediate crude futures followed suit with a 0.4% decrease, equivalent to 31 cents, bringing the price to $83.43 per barrel.
The unexpected downturn in Eurozone business activity this month has raised apprehensions about a potential recession within the bloc, contributing to a subdued outlook for oil demand. Data from Euroilstock reveals that the region’s oil refineries have been utilizing less crude than the previous year, reflecting sluggish economic growth.
Concurrently, international efforts are underway to secure a pause or ceasefire in the conflict between Israel and Hamas in Gaza, aimed at delivering humanitarian assistance to Palestinian civilians under siege. Furthermore, discussions between the leaders of the United States and Saudi Arabia have revolved around preventing the conflict from escalating to involve major oil producer Iran.
Vishnu Varathan, Head of Economics and Strategy at Mizuho Bank, noted, “Oil’s pullback has coincided with disappointingly soft European PMIs, suggesting at least some softening on the demand side, rather than being entirely attributed to alleviated supply disruption threats caused by war.”
However, Varathan emphasized that it’s premature to assert with confidence that geopolitical risk premiums associated with the Israel-Hamas conflict have significantly dissipated.
Crude oil prices might receive some support from China, the world’s largest oil importer, as its top parliamentary body approved a bill to issue 1 trillion yuan ($137 billion) in sovereign bonds and permit local governments to release new debt from their 2024 quota, with the intention of stimulating the economy. Nevertheless, China has placed a ceiling on its oil refining capacity at 1 billion metric tons by 2025 as part of its efforts to streamline its extensive oil processing sector and reduce carbon emissions, which could restrict demand for crude oil.
On a more positive note, falling crude oil stockpiles in the United States, the world’s largest oil consumer, have contributed to price support. According to market sources citing American Petroleum Institute figures, U.S. inventories fell by approximately 2.7 million barrels during the week ending October 20, contrary to the forecasts of eight analysts polled by Reuters, who had expected an average increase of approximately 200,000 barrels for the week. Gasoline inventories also saw a decline of 4.2 million barrels, and distillate inventories decreased by about 2.3 million barrels, as indicated by the API data.
The U.S. government is expected to release its data on inventories later today.
