Crude oil prices began the week on an upward trend after a rocket strike on the Golan Heights rekindled fears of conflict escalation in the Middle East. Although prices remain near a six-week low, the trend is positive. Chinese economic data, particularly the latest industrial profits for June, have helped alleviate concerns about demand in the world’s largest oil importer. Vivek Dhar, an analyst at Commonwealth Bank of Australia, noted that concerns around China’s economy have weighed on energy commodity prices. However, he expects that demand concerns will likely be overshadowed by rising geopolitical risks in the Middle East.
The rocket strike on the Israel-annexed Golan Heights, which killed more than a dozen people, has heightened tensions. Hezbollah denied responsibility for the attack, but Israel has threatened retaliation against the Lebanon-based group, sparking fears of further escalation.
Last week saw oil prices suffer their third consecutive weekly loss, primarily due to demand concerns in China. Data indicated weakening demand for oil, with refinery run figures and an annual decline in oil imports both contributing to this perception. Fuel imports into China fell by 11% in the first half of the year, reinforcing these concerns.
Despite this, geopolitical factors appear set to dominate oil prices this week. According to Toshitaka Tazawa, an analyst at Fujitomi Securities, worries over escalating tensions in the Middle East have prompted fresh buying, though gains were limited by persistent concerns about weakening demand in China.
In addition to the violence in the Middle East, Israel has reconsidered its stance on a prospective ceasefire with Hamas. The Israeli government now seeks changes to the ceasefire plan, complicating negotiations. This information was reported by Reuters, citing unnamed Western and Egyptian sources.
While geopolitical tensions are expected to influence oil prices in the short term, the underlying concerns about Chinese demand will likely continue to impact the market.
Union Jack Oil plc (LON:UJO) is an onshore oil and gas exploration company with a focus on drilling, development and investment opportunities in the United Kingdom hydrocarbon sector.
