Analysis Energy

Geopolitical tension keeps oil price steady

July 4, 2024 - Matthijs Bremer

The price of oil has slightly increased this week and reached the highest point since the end of April. The American commercial reserves decreased significantly, while geopolitical tensions in the Middle East continued to dominate the market. However, the weaker Chinese economy is tempering the rise.

The oil price has once again taken a step up compared to last week. On Thursday, June 27, oil was traded at $85.26 per barrel. On Friday, June 28, the price slightly decreased to $85. Since then, the oil price has risen. On Monday, July 1, the oil price reached the highest point since April 1. That day, the price for a barrel was $86.60. The price has since dropped again.

An important cause for the rise is a significant decrease in the American oil reserves. Data from the American Petroleum Institute (API) shows that the commercial reserves have decreased by over 9 million barrels. The market's expectation was a decrease of 150,000 barrels. This news is creating significant upward momentum because the reserves have been increasing more than expected by the market in recent weeks. This indicates that the demand is lower than expected.

Players in the oil market are waiting for an increase in demand for oil due to a seasonal increase in air traffic. The market's expectation is that demand could significantly increase due to this seasonal trend. The significant decrease in reserves could indicate this.

Geopolitical tensions
Additionally, geopolitical tensions are keeping the oil price steady. The fear of a large-scale Israeli attack on Lebanon continues to dominate the oil market. Israel is sending mixed signals about a possible war with the neighboring country. The Israeli Minister of Defense, Yoav Gallant, said during a state visit to Washington that Israel is not seeking a war in Lebanon. In the same message, the minister also stated that Israel is capable of bombing Lebanon back to the Stone Age. Meanwhile, Iran has warned that Israel will face a devastating war if it invades Lebanon.

Yesterday (July 3), news followed that Israel managed to kill a high-ranking commander of Hezbollah. The commander was killed in a drone attack on his car in the coastal city of Tyre. According to Israel, the commander was involved in recent attacks in the border area between Lebanon and Israel.

Chinese economy dampens rise
The limited rise is due to signals that the Chinese economy was somewhat weak in June. The Purchasing Managers Index (PMI) from the Chinese government's statistics bureau, a key indicator of economic growth, stood at 49.5 that month. A PMI above 50 indicates economic growth, while a PMI below 50 indicates contraction. This marks the lowest point in five months for the PMI. This result raises doubts about the recovery that the Chinese economy has been experiencing in recent months. Additionally, consumption in the world's largest manufacturing country has decreased. The U.S. Energy Information Administration (EIA) published a report this week showing that Chinese oil consumption in the first half of 2023, compared to the same period last year, has decreased by 300,000 barrels.

This week, the diesel price rose along with the oil price. On Thursday, June 27, diesel was traded at €131.44. On Monday, July 1, the price reached the lowest point of the week at €131.14. The price of diesel then rose again. On Wednesday, July 3, the price was at its highest, €132.54.

Matthijs Bremer

Matthijs Bremer is a market specialist in pork, beef, and poultry meat at DCA Market Intelligence. He also monitors the protein transition, keeping an eye on developments in cultured meat and meat substitutes.

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