Oil prices recovered on Monday, bolstered by political instability in the US and the Middle East, which helped counterbalance the negative effects of a stronger dollar and diminished demand from China, the largest importer. Brent crude futures increased by 15 cents, or 0.2%, reaching $85.18 a barrel at 0425 GMT, following a 37-cent drop on Friday. Meanwhile, U.S. West Texas Intermediate crude was at $82.41 a barrel, showing a 20-cent, or 0.2%, rise. The oil market appeared resilient to the strengthening dollar, which gained momentum after an unsuccessful assassination attempt on U.S. presidential candidate Donald Trump.
"The assassination attempt over the weekend cannot be overlooked, especially considering the deep divisions in the country leading up to the election," commented IG market analyst Tony Sycamore. In the Middle East, negotiations to resolve the Gaza conflict between Israel and Hamas were suspended on Saturday after three days, although a Hamas official clarified that they had not withdrawn from the talks. However, an Israeli operation against the group's military leader resulted in the death of 90 people on the same day. This instability has maintained a high geopolitical risk premium in oil prices.
Additionally, oil markets are supported by supply reductions from OPEC+, with Iraq's oil ministry pledging to offset any overproduction starting from 2024. Last week, Brent crude declined by more than 1.7% after four consecutive weeks of gains, while WTI futures dropped by 1.1%, as a decrease in China's crude imports, the world's largest, contrasted with strong summer consumption in the United States. "Despite supportive fundamentals, there are increasing concerns about demand, primarily from China," noted ING analysts led by Warren Patterson. China's crude oil imports dropped by 2.3% in the first half of the year to 11.05 million barrels per day, due to weak fuel demand and reduced output from independent refineries due to poor profit margins. Crude processing at Chinese refineries also fell by 3.7% in June compared to the previous year to 14.19 million bpd, marking the lowest level so far this year, according to customs data released on Monday.
China's economic growth decelerated in the second quarter, influenced by a prolonged property market downturn and job insecurity, which impacted domestic demand and fueled expectations of further stimulus from Beijing. In the United States, the active oil rig count, a precursor to future production, decreased by one to 478 last week, the lowest since December 2021, as reported by energy services firm Baker Hughes on Friday.
