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Oil market turmoil: China real estate crisis and Middle East tensions impact prices

Oil market turmoil: China real estate crisis and Middle East tensions

The oil market experienced a tumultuous beginning to the week as prices underwent a decline due to concerns associated with the real estate sector in China. The prevailing uncertainty surrounding the Chinese real estate market triggered apprehensions about a potential reduction in oil demand, thereby casting a shadow over the market.

Concurrently, the escalation of tensions in the Middle East over the weekend further complicated the situation, intensifying concerns about potential disruptions in oil supplies within the region.

On Monday, Brent crude oil prices saw a notable decrease of 2.03%, reaching $81.85 per barrel, while U.S. West Texas Intermediate crude oil recorded a decline, settling below $77 per barrel. This marked the conclusion of the upward trend observed in the "black gold" during the preceding week.

The downturn in oil prices is attributed to investor apprehensions concerning the situation in the Chinese real estate sector, prompted by reports of an order to liquidate the massive developer China Evergrande Group.

This development represents a new chapter in the escalating crisis within the Chinese real estate sector. Considering China's status as the world's largest oil importer, growing uncertainties in the Chinese real estate market prompt questions about the potential impact of this crisis on global energy markets.

Simultaneously, the oil markets opened with an upward gap in the morning, following a drone attack on a U.S. base that resulted in over twenty people being injured. This incident marks the first American casualties in a series of attacks carried out by local militias supported by Iran since the commencement of the Israel-Hamas conflict in October.

The market's response is closely tied to geopolitical uncertainties, especially those concerning the Strait of Hormuz.

President Joe Biden has pledged to hold those responsible accountable, while U.S. military personnel work towards identifying the specific group behind the attack. This incident has prompted calls for direct action against Iran.

However, Iran has firmly denied any involvement in the attack. A spokesperson for the Iranian mission to the United Nations in New York stated that the conflict stems from U.S. military actions against resistance groups in Iraq and Syria.

Prior to these recent developments, oil markets were in a robust condition owing to production interruptions in the U.S. and optimistic economic growth forecasts. These events could potentially further increase oil prices.

Nonetheless, he also highlighted the delicate balance that President Biden must maintain in responding to these events, particularly in light of the upcoming elections in the United States.

It is noteworthy that historically, tensions in the Middle East have led to short-lived increases in oil prices. However, the geopolitical risk premium has not been sustained over time. For instance, the WTI crude oil price remains approximately $15 below its 2023 peak despite recent gains.

oil market analysis
XTI/USD, daily chart, 29.01.2024



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