Tensions in the Middle East have once again drawn widespread attention in the global oil market. On Tuesday, October 22nd, oil prices continued to climb for a second consecutive day due to the escalating conflict between Israel and Iran, which threatens the stability of global crude oil supply. Despite the U.S.' efforts to mediate a ceasefire, armed attacks in the region have not ceased, further exacerbating market unease.
West Texas Intermediate (WTI) crude futures for November delivery rose by $1.53, or 2.17%, closing at $72.09 a barrel on the New York Mercantile Exchange. Meanwhile, Brent crude futures for December delivery on the Intercontinental Exchange in Europe also increased by $1.75, or 2.36%, to $76.04 a barrel.
The volatility in the crude oil market is not limited to geopolitical risks. Since the sharp correction in oil prices last week, traders have been closely monitoring the potential impact of Middle East tensions on the supply chain. Particularly, the strained relationship between Israel and Iran has raised concerns over oil transport in the region. Rebecca Babin, a senior energy trader at CIBC, noted that market sentiment is swinging between expectations of a ceasefire and the risk of escalating conflict, resulting in significant oil price fluctuations.
U.S. Secretary of State Antony Blinken has traveled to the Middle East to meet with Israeli leaders to mediate the conflict. However, the oil market is not overly optimistic about this mediation. Mizuho's head of energy futures, Bob Yawger, pointed out that oil traders are not showing noticeable optimism about Blinken's visit, especially given the past failed mediation attempts.
Meanwhile, Hezbollah, an Iran-backed militant group, has clearly ruled out the possibility of a ceasefire, continuing fierce confrontations with Israel, which undoubtedly heightens market uncertainty. Oil traders remain cautious in this context, with low risk threshold operations leading to market volatility.
Alongside geopolitical risks, the oil market is also assessing the balance of global supply and demand. Although China, Asia's largest oil importer, has recently implemented a series of economic stimulus measures, there are still doubts about their effectiveness in boosting demand. Alex Hodes, an energy analyst at brokerage firm StoneX, pointed out that although China has cut its benchmark lending rates to stimulate the economy, it may be difficult to significantly increase fuel demand in the short term.
Nonetheless, global oil inventory data suggest that supply may tighten in the fourth quarter, which will support oil prices. Particularly from the Saudi perspective, Saudi Aramco's CEO expressed optimistic expectations regarding China's oil demand, believing that China's economic stimulus plans will continue to drive growth in the country's oil demand.
However, the latest report from the International Energy Agency indicates that due to China's push for vehicle electrification and its economic slowdown, China's oil demand growth is expected to remain weak until 2025.
Overall, the upward trend in oil prices results from the combined effects of geopolitical risks and global economic uncertainties. Against the backdrop of tensions in the Middle East, the global market remains full of uncertainties, and oil price fluctuations will continue to influence the direction of the energy market.
