Oil prices rose on Monday, recovering some of last week’s losses, due to fears of escalating conflict in the Middle East following a rocket strike in the Israeli-occupied Golan Heights. Both Israel and the United States attributed the attack to Hezbollah, a Lebanese armed group. Brent crude futures increased by 40 cents, or 0.5%, to $81.53 a barrel, while U.S. West Texas Intermediate (WTI) crude futures went up by 34 cents, or 0.4%, to $77.50 a barrel.
The previous week saw Brent drop by 1.8% and WTI by 3.7%, primarily due to decreased Chinese demand and the anticipation of a ceasefire agreement in Gaza. On Sunday, Israel’s security cabinet gave Prime Minister Benjamin Netanyahu’s government the authority to determine the response to the rocket strike in the Golan Heights, which resulted in the deaths of 12 teenagers and children. Although Hezbollah, backed by Iran, denied involvement, this incident was the deadliest since Hamas’ assault on October 7, which ignited the ongoing Gaza conflict that has the potential to escalate regionally.
In response, Israel has pledged retaliation against Hezbollah in Lebanon, with Israeli jets targeting southern Lebanon on Sunday. Despite the fresh buying triggered by concerns over the Middle East tensions, gains were limited by persistent worries about weakening demand in China, as noted by Toshitaka Tazawa from Fujitomi Securities.
The past few weeks have seen rising hopes for a Gaza ceasefire, but Israel’s demands for changes in the truce plan and the release of hostages by Hamas have complicated negotiations. On the demand side, China’s total fuel oil imports dropped by 11% in the first half of 2024, raising concerns about the broader demand outlook from the world’s largest crude importer. Independent market analyst Tina Teng highlighted that slowing economic growth and sluggish domestic consumer demand in China are pressing down on oil prices. Upcoming events, such as the U.S. Federal Reserve’s rate decision and China’s manufacturing PMI, are crucial for predicting the oil market’s direction.
Meanwhile, U.S. energy firms have increased their oil and natural gas rig count for the second consecutive week, reaching the highest monthly count since November 2022, according to energy services firm Baker Hughes. Additionally, the market is monitoring Venezuela after its electoral authority declared President Nicolas Maduro the winner of a third term with 51% of the vote, despite exit polls suggesting an opposition victory. U.S. Secretary of State Antony Blinken expressed serious concerns about the election results, indicating they might not reflect the will of the people. The U.S. had previously stated that its sanctions policy towards Venezuela would be adjusted based on the election’s outcome in the OPEC nation.
Whilst oil prices have reacted to immediate geopolitical risks, the long-term trajectory remains influenced by economic indicators and demand forecasts, particularly from major consumers like China.
Challenger Energy Group plc (LON:CEG) is a Caribbean and Atlantic margin focused oil and gas company, with a range of petroleum assets located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay.
