Oil Prices Rise Amid Global Uncertainty
Oil prices rose slightly on Tuesday, supported by instability in the Middle East as well as China’s stimulus plans and data. However, global growth concerns, US tariffs, and Russia-Ukraine ceasefire talks curbed gains.
Brent Futures Rise to $71.43 a Barrel
Brent futures rose 36 cents, or 0.5 percent, to $71.43 a barrel by 10:00 a.m Saudi time. This increase is attributed to several factors providing support to the market. According to ING analysts, along with US strikes on the Houthis in Yemen, China’s plans to revive consumption and stronger-than-expected Chinese retail sales and fixed asset investment growth are contributing to the rise in oil prices.
China’s Stimulus Plans Provide Boost
China unveiled a special action plan to boost domestic consumption last Sunday. The plan includes measures such as boosting incomes and offering childcare subsidies. These initiatives aim to stimulate economic growth by increasing consumer spending. On Monday, Chinese economic data showed that retail sales growth quickened in January-February, giving investors reasons for optimism.
Retail Sales Growth Quickens
Retail sales growth in China rose 8.2% year-over-year in February, beating expectations. This increase is attributed to a combination of factors, including a new refinery and holiday travel. Crude oil throughput in China, the world’s biggest crude importer, rose 2.1% in January and February from a year earlier, supported by these developments.
US Tariffs and Trade Wars Weigh on Demand
However, persistent concerns about demand are weighing on oil prices. The OECD stated that Trump’s tariffs would drag down growth in the US, Canada, and Mexico, which would weigh on global energy demand. This reduction in demand is a key downside risk for oil prices.
Global Supply Surges
Further adding to global supply, Venezuela’s state-run PDVSA has put together three operational scenarios indicating it plans to continue producing and exporting oil from its joint venture with Chevron after the US major’s license expires next month. This development will increase global supply and potentially weigh on oil prices.
Israel-Palestinian Conflict and Russia-Ukraine Ceasefire Talks
The ongoing conflict between Israel and Palestine is also affecting oil prices. Israeli air strikes in Gaza killed at least 200 people, Palestinian health authorities said. The attacks ended a weeks-long standoff over extending a ceasefire that halted fighting in January. Meanwhile, talks on Tuesday between Trump and Russian President Vladimir Putin about ending the Ukraine war are in focus.
Market Expectations for Prices
Markets believe a potential peace negotiation would involve the easing of sanctions on Russia and the return of its crude supply to global markets, weighing on prices. According to Robert Rennie, head of commodity and carbon strategy at Westpac, "With global supply surging and tariffs and trade wars set to hit global demand, we remain of the view that prices will head lower and eventually reach the mid $60s."
Conclusion
Oil prices rose slightly on Tuesday amid global uncertainty. While instability in the Middle East and China’s stimulus plans provided support to the market, global growth concerns, US tariffs, and Russia-Ukraine ceasefire talks curbed gains. The ongoing conflict between Israel and Palestine is also affecting oil prices, and markets are watching for developments related to a potential peace negotiation between Trump and Putin about ending the Ukraine war. As supply continues to surge and demand remains uncertain, oil prices may face downward pressure in the coming days.