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• Oil prices ease on Tuesday as possible ceasefire talks in the Middle East dampen sentiments.
• Focus remain on oil demand in China even as the country tries to decarbonize its economy.
• Middle East conflict has led to no disruption of crude oil from the region so far.

Crude oil prices eased Tuesday as US Secretary of State Antony Blinken is in Israel to renew talks about a possible ceasefire in the Middle East. 

Oil prices are also in the red as poor demand concerns from China continue to grip the market. 

Secretary Blinken arrived in Israel on Tuesday to renew ceasefire talks to end the war between Israel and Hamas in Gaza.

Blinken is also scheduled to visit other Middle Eastern countries as he tries to defuse the spillover conflict into Lebanon. 

At the time of writing, the price of West Texas Intermediate crude oil was at $69.60 per barrel, down 0.6%. Brent crude oil on Intercontinental Exchange was at $73.81 per barrel, down 0.7% from the previous close. 

Both benchmarks settled 2% higher on Monday, recouping some of the heavy losses incurred last week. Oil prices fell 7% last week on concerns over poor demand in China, and as reports claimed that Israel may avoid targeting Iran’s oil facilities. 

Experts attributed Monday’s gains to short-covering by investors after prices fell sharply last week. 
 

Focus on China’s demand

The market continues to focus on demand signals from the largest importer of oil, China. 

The country’s economy has been struggling off-late and there have been no signs of improvement in oil demand from the Asian giant. 

Satoru Yoshida, a commodity analyst at Rakuten Securities told Reuters:

 

The market is expected to rise if there are clearer signs of China’s economic recovery, bolstered by Beijing’s stimulus measures and improvement in the U.S. economy following interest rate cuts. 

China on Monday cut key benchmark lending rates as anticipated to revive its economic activities. “While the cut was unsurprising, the reduction was slightly larger than the market expected,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

The move comes after data showed last week that China’s economy grew at the slowest pace in the third quarter since early 2023. 

Experts also believe that China’s oil demand is likely to remain sluggish in 2025 as the country tries to expand its fleet of electric vehicles to decarbonize its economy. 
 

Middle East tensions have led to no supply disruptions so far

Despite the ongoing conflict in the Middle East and rising tensions, oil supply has not been affected by the region so far. 

The Middle East sits on more than half of the world’s oil reserves and any kind of escalations in the region tend to add risk premiums to oil prices. 

Since October 1, when Iran attacked Israel, the market had been waiting for the latter’s response. Traders were even expecting Israel to strike oil facilities in Iran, wiping out 4% of global supply. 

But, it seems Israel is likely to attack military targets instead of crippling Iran’s oil facilities as it is not in the interest of the former’s allies such as the US. 

Moreover, there has not been any kind of disruptions to supply over the past year since the war broke out between Israel and Hamas in Gaza. 

NG’s Patterson said:

 

However, assuming no supply disruptions in the Middle East, the oil balance looks increasingly comfortable through 2025 with OPEC+ set to gradually bring 2.2m b/d of oil supply back onto the market.

Saudi Aramco still bullish on China’s demand

Saudi Arabia’s state-owned Saudi Aramco, recently said that it is “fairly bullish” on China’s oil demand. 

The optimism stems from the stimulus packages announced by the Chinese government recently. 

But, an interesting thing to point out is that the Organization of the Petroleum Exporting Countries in October revised its estimate for growth in global oil demand for the third consecutive month. 

The downgrade to OPEC’s estimates is primarily due to poor demand for oil in China. 

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