Oil prices showed an increase on Tuesday after a significant drop of 6% in the prior session. The rise came as the United States outlined a plan to purchase oil for its Strategic Petroleum Reserve (SPR), a move that brought some support to the market. However, concerns about future demand growth continued to weigh on oil prices. Brent crude futures gained 74 cents, moving to $72.16 a barrel, while U.S. West Texas Intermediate crude rose by 68 cents to reach $68.06 a barrel.
The previous day, both contracts had dropped to their lowest levels since early October. Over the weekend, Israel conducted a retaliatory strike on Iran, although this did not impact Tehran’s oil infrastructure. With the conflict showing no immediate signs of escalation, investors turned their focus back to slowing global oil demand, particularly for this year and the next. China, the world’s largest oil importer, has seen a decrease in demand, which continues to impact global oil prices negatively.
The situation is further affected by low global refining margins, which are currently weak due to a slow economic recovery in China. BP’s CEO, Murray Auchincloss, recently mentioned that global oil demand growth is underperforming, citing China’s sluggish economic performance as a major factor. He suggested that demand could see a rebound if Chinese President Xi Jinping introduces fresh economic stimulus measures. Harry Tchilinguirian, research head at Onyx Capital Group, noted that while geopolitical tensions remain, attention is now turning to economic factors, especially as China’s industrial profits decline.
Tensions in the Middle East, however, persist. On Monday, Iranian Foreign Ministry spokesperson Esmaeil Baghaei stated that Iran intends to “use all available tools” in response to Israel’s actions. Meanwhile, the U.S. announced plans to purchase up to 3 million barrels of oil for delivery to the SPR by May next year. Although this provides some fundamental support to the market, Tchilinguirian pointed out that these barrels may not be enough to counteract the negative sentiment on oil demand, which remains a significant issue in China and Europe.
In the U.S., the weekly trend in crude oil and gasoline stockpiles suggests an increase, while distillate inventories are expected to decline, according to a preliminary Reuters poll. Further insights are anticipated from the American Petroleum Institute’s weekly report on Tuesday and a report from the Energy Information Administration, due Wednesday.
Union Jack Oil plc (LON:UJO) is an oil and gas company with a focus on onshore production, development, exploration and investment opportunities within the United Kingdom and the United States of America hydrocarbon sector.
