In early Asian trading on Tuesday, oil prices continued their downward trend, extending losses from the previous session. This decline is primarily attributed to growing concerns about Chinese demand and a perceived reduction in the risk of escalating conflict in the Middle East.
As of 0033 GMT, Brent crude oil futures experienced a decrease of 12 cents, or 0.15%, settling at USD 79.78 per barrel. Simultaneously, U.S. crude futures saw a decline of 14 cents, or 0.18%, reaching USD 75.67 per barrel.
The oil market has been significantly influenced by a series of disappointing economic indicators emerging from China, the world’s second-largest oil consumer. A Reuters poll conducted on Monday suggested that China’s manufacturing activity likely contracted for the third consecutive month in July, further dampening market sentiment.
Adding to the bearish outlook, Citigroup revised its growth forecast for China, lowering it from 5% to 4.8%. This adjustment came in the wake of China’s second-quarter growth figures falling short of analyst expectations. Citi analysts noted a continued softening of economic activity in July, contributing to the downward revision.
Market participants are closely monitoring an upcoming meeting of China’s Politburo, the country’s top decision-making body, expected to convene this week. There are hopes that this meeting might yield additional economic policy support measures. However, expectations remain tempered following the Third Plenum, a key policy meeting held in mid-July, which largely reiterated existing economic policy goals and failed to significantly boost market sentiment.
The oil market’s reaction to geopolitical tensions in the Middle East has been notably muted. Oil prices fell by 2% in the previous trading session after Israel signalled that its response to a Hezbollah rocket strike in the Israeli-occupied Golan Heights would be measured to avoid sparking a wider regional conflict. This stance was reinforced by reports of a U.S. diplomatic effort aimed at constraining Israel’s retaliatory actions, particularly discouraging strikes on Beirut or major civilian infrastructure in Lebanon.
In a separate development, the political situation in Venezuela, a significant oil-producing nation, has added another layer of complexity to the global oil market. The Venezuelan opposition claimed to have won 73% of the vote in recent elections, despite the national electoral authority declaring incumbent Nicolas Maduro the winner, granting him a third term in office. This disputed outcome has led to protests across Venezuela and scepticism from international governments, including Washington.
ANZ analysts commented on the potential implications of Maduro’s victory, stating, “Nicolas Maduro’s victory in the latest Venezuelan election is a headwind for global supply, as this could result in tighter US sanctions.” They estimated that such sanctions could potentially reduce Venezuela’s oil exports by 100,000 to 120,000 barrels per day.
As governments worldwide express doubts about the election results and call for a complete vote tabulation, the situation in Venezuela remains fluid. The potential for tightened sanctions on Venezuelan oil exports adds another variable to the complex equation of global oil supply and demand.