Oil prices showed signs of stabilization on Tuesday after two consecutive sessions of decline, as geopolitical tensions in the Middle East began to ease with the potential for a ceasefire deal in Gaza. However, concerns over weakening demand from China, the world's second-largest economy, continue to weigh heavily on the market.
Brent crude, the international benchmark, edged up by 19 cents, or 0.24%, to $77.85 per barrel by mid-morning GMT. Meanwhile, the more actively traded October West Texas Intermediate (WTI) contract rose by 19 cents, or 0.26%, to $73.85 per barrel. This slight recovery follows a sharp drop in prices earlier in the week, with Brent and WTI falling by approximately 2.5% and 3% respectively on Monday.
U.S. Secretary of State Antony Blinken announced on Monday that Israeli Prime Minister Benjamin Netanyahu had accepted a U.S.-proposed "bridging deal" aimed at resolving disputes that have so far hindered a ceasefire in Gaza. This development helped alleviate fears of a potential disruption to oil supplies in the region, which had contributed to the earlier spike in oil prices.
"The thinner liquidity in the oil market at present, combined with comments from Secretary Blinken on a possible Gaza ceasefire deal, triggered an unwinding of some oil price spike hedge positions," noted UBS analyst Giovanni Staunovo.
The market has been on edge due to the ongoing conflict between Israel and Hamas, with fears of a broader regional escalation that could impact the flow of crude from the Middle East. The absence of an Iranian response to the assassination of a top Hamas official in Tehran had already prompted a downturn in oil prices last week. However, the latest progress toward a ceasefire has further eased these concerns.
Yeap Jun Rong, a market strategist at IG, commented on the situation: "A ceasefire deal in Gaza now seems more likely than not, which saw market participants pricing out the risks of geopolitical tensions on oil supplies disruption."
While the prospect of a ceasefire in Gaza has helped alleviate some geopolitical risk premiums, oil prices are still under pressure from economic concerns in China. The world's second-largest economy has shown signs of weakening, with recent data indicating slower industrial output, a sharp decline in new home prices, and rising unemployment. These factors have led to a reduction in China's oil demand, further dampening the outlook for global crude consumption.
Warren Patterson and Ewa Manthey, commodity strategists at ING, noted that the bearish sentiment in the market is largely driven by these demand concerns centered on China. They pointed out that recent economic indicators suggest a continued decline in apparent Chinese oil demand, which has made speculators hesitant to re-enter the market despite expectations of a supply deficit for the remainder of the year.
