Oil prices on Tuesday rebounded after a 3% drop as Middle East supply fears eased and the Federal Reserve anticipation grew, although weaker economic reading from China curbed gains.
Brent futures for January delivery increased by 0.50% to $86.78 a barrel, while the US West Texas Intermediate (WTI) for December climbed 0.53% to $82.75 a barrel.
Oil prices significantly fell as the market saw no quick escalation in the fight between Israel and Hamas, leading traders to price in lower risk premiums.
The war’s outbreak has raised concerns of broader conflict involving other Middle Eastern countries and oil supply disruption in the region. Still, these fears have yet to occur.
However, traders continued to monitor any fresh developments, particularly with Israel’s extensive ground offensive in Gaza.
Traders have locked in recent profits, bracing for upcoming economic events this week, especially the Fed’s interest rate decision on Wednesday.
Oil price gains were capped as top oil importer China’s October purchasing manager’s index (PMI) data disappoints. Manufacturing activity in the country contracted to 49.5 in October, while a significant deceleration in non-manufacturing growth to 50.6 was observed.
The reading suggests that despite Beijing’s stimulus efforts, business activity lagged amid weaker domestic and international demand for Chinese products. Additionally, the data raised doubts about the extent of Chinese oil consumption growth this year, considering deteriorating economic conditions.
Chinese energy giant Sinopec recently said the country’s fuel demand may have peaked in 2023 and was on track to gradually falter amid robust electric vehicle (EV) demand.
Oil markets have also remained cautious before the end of the Fed’s meeting on Wednesday. The central bank is likely to keep interest rates steady and reiterate the outlook of extended higher rates.
Such a situation may impede oil demand and economic growth in the coming months as global monetary conditions tighten.
Central Banks’ Interest Rate Decisions in Focus
Traders remained vigilant about global monetary policy as major central banks are scheduled to conduct weekly rate-setting meetings.
The Bank of Japan’s (BOJ) Tuesday meeting starts interest rate decisions where it is seen revising its inflation forecasts upwards and consider further adjusting bond yield curve control (YCC).
It was speculated on Monday that the BOJ would make a move as a report suggested a potential YCC tweak to help the 10-year Japanese government bond yield exceed the 1% level.
Meanwhile, the Fed meeting on Wednesday and the Bank of England’s (BOE) on Thursday would involve talks about monetary policy and future rate hikes. The US central bank is expected to maintain current interest rates.
Investors also await Hong Kong’s and Taiwan’s gross domestic product (GDP) for the third quarter.
