Geopolitical tensions have driven oil prices higher, tightening crude supply, while demand in China remains sluggish.
On Monday, Brent crude surpassed $75 per barrel, and U.S. WTI climbed to $71.11 per barrel, marking a rebound from earlier lows.
Brent had previously dipped below $70 per barrel in September, but rising tensions in the Middle East have reinstated risk premiums, according to ING.
Cross-border attacks between Israel and Hezbollah have raised concerns of a broader conflict, leading to fears of supply disruptions in the Middle East.
ING strategists, Ewa Manthey and Warren Patterson, noted that while these tensions have increased risks, concerns about global demand remain significant.
In China, the People’s Bank of China lowered the reverse repo rate by 10 basis points and hinted at additional measures to boost economic growth.
This has slightly improved market sentiment, as China issued its third and possibly final oil product export quota for the year.
The quota includes 8 million tonnes of gasoline, diesel, and jet fuel, bringing the total to 41 million tonnes, slightly above last year’s 40 million tonnes. Additionally, a 1 million-tonne quota for low-sulfur fuel oil was issued, reflecting a 2% decline year-on-year.
Speculative investors have re-entered the oil market, with speculators reducing their net short positions in ICE Brent by 4,539 lots, leaving them with 8,141 net shorts as of mid-September, according to ING.
Looking ahead, China is expected to implement more rate cuts this year. Larry Hu of Macquarie forecasts the central bank will reduce the policy rate by 20 basis points and the reserve requirement ratio by 50 basis points by the end of 2024.
Elsewhere, Hurricane Francine’s impact on the U.S. Gulf Coast has caused production disruptions, further tightening supply and supporting price increases.
Meanwhile, data from the American Petroleum Institute (API) revealed an unexpected rise of 1.96 million barrels in U.S. crude inventories, signaling weaker domestic demand and pulling prices lower.
Last week, the Federal Reserve cut interest rates by 50 basis points, marking its first reduction in four years.
The Fed plans another 50-basis-point cut by year-end, which could stimulate economic activity and oil demand. Despite a 1.6 million-barrel drop in U.S. crude inventories, gasoline stockpiles increased by 100,000 barrels.
Market participants are closely watching developments in the Middle East, where ongoing tensions could disrupt oil supplies.
Additionally, challenges in the U.S. economy, such as slowing manufacturing activity and modest employment gains, are also influencing prices.
OPEC+ has extended its production cuts through November in response to falling crude and fuel prices, further influencing the market outlook.