Global Oil Price Slips On China Economic Headwinds
Oil prices edged lower on Tuesday, extending a more than 1 per cent drop in the previous session on China's economic outlook, though losses were kept in check by supply fears driven by escalating tensions in the Middle East.
March Brent crude futures, which are due to expire on Wednesday, fell 52 cents, or 0.6 per cent to USD 81.88 a barrel by 1413 GMT. The more active April contract was down 50 cents, or 0.6 per cent at USD 81.33. US West Texas Intermediate crude lost 29 cents, or 0.4 per cent to USD 76.49.
Both contracts fell by more than USD 1 on Monday as a deepening real estate crisis in China fuelled concerns over demand in the world's biggest crude consumer, with a Hong Kong court ordering the liquidation of property company China Evergrande Group.
"(The) ramifications of a possible collapse in China's property sector make moot any authority stimulus and will have very negative global shockwaves," said PVM analyst John Evans.
The continuing conflict in the Middle East, however, prevented further losses.
Washington vowed to take "all necessary actions" to defend its troops after a deadly drone attack in Jordan by Iran-backed militants, the first US military deaths since the Israel-Gaza war began, putting markets on edge.
"If US-Iran tensions escalate, particularly through a confrontation, the risk rises that Iran's oil supply is adversely impacted," said Commonwealth Bank of Australia analyst Vivek Dhar. "Iranian oil exports are likely the most vulnerable via potentially greater enforcement of sanctions."
Iran exported 1.2 million to 1.6 million barrels per day (bpd) of crude oil through most of 2023, Dhar added, representing 1-1.5 per cent of the global oil supply.
"At USD 82, we estimate Brent is trading today only about USD 4 above its fair value, with USD 2 added to account for increased freight costs," JP Morgan said on Tuesday, adding that the geopolitical premium accounted for the rest.
On the supply side, while an OPEC+ meeting on 1 February, was unlikely to bring a decision on the group's oil policy for April, analysts are hoping it could shed some 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 sees no need for this extra oil in the global market," said SEB analyst Bjarne Schieldrop.
Saudi Arabia is the world's biggest oil exporter.
