Oil prices experienced a modest rise on Monday, following last week’s U.S. interest rate cut and a reduction in crude supply caused by Hurricane Francine. These factors balanced out weaker demand from China, the world’s largest oil importer. Brent crude futures for November saw a slight increase, rising by 14 cents or 0.19%, to reach $74.63 a barrel by 0815 GMT. U.S. crude futures for November also moved upward, climbing 16 cents or 0.23%, to settle at $71.16.
Both Brent and U.S. crude futures marked their second consecutive weekly gains last week. This was largely attributed to the U.S. Federal Reserve’s decision to lower interest rates by half a percentage point—a reduction in borrowing costs that was larger than anticipated by many market watchers. Despite this, oil prices seemed to remain within a certain range, with limited upward movement. Harry Tchilinguirian, head of research at Onyx Capital Group, commented that oil markets appeared to be rangebound, despite the positive impact of the Fed’s substantial rate cut on risky asset prices. He also noted that the market would likely turn its attention to upcoming flash purchasing managers’ index (PMI) data from Europe and the U.S. to gauge the economic outlook. Should these indicators underperform, oil prices might face downward pressure.
Economic data from the eurozone pointed to an unexpected and sharp contraction in business activity. The region’s services sector stagnated while the manufacturing downturn deepened, according to a survey released on Monday. This gloomy outlook, combined with weaker demand from China, hindered further price gains for oil. UBS analyst Giovanni Staunovo highlighted that there had been some optimism earlier in the day about potential Chinese monetary stimulus in the near term. However, negative PMI data from Europe quickly shifted market sentiment, dampening earlier hopes.
Despite these challenges, Staunovo anticipated that oil could still benefit in the short term, particularly from a likely significant drawdown in U.S. crude stockpiles, driven by heightened U.S. crude exports. On the geopolitical front, tensions in the Middle East added another layer of uncertainty to oil markets. The Israeli military launched an extensive wave of air strikes against Hezbollah, a group backed by Iran, targeting multiple areas in Lebanon, including the south, eastern Bekaa Valley, and the northern region near Syria. This marked the most widespread military action in nearly a year of ongoing conflict.
Yeap Jun Rong, a market strategist at IG, pointed out that escalating geopolitical tensions in the Middle East, especially between Israel and Hezbollah, could offer support to oil prices due to the potential risk of a broader regional conflict that might disrupt supply.
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.
