Market Analysis

Middle East tensions and new Chinese stimulus drive up oil prices

Amos Simanungkalit · 24 Sep 20246.3K Views

Oil prices rose on Tuesday, buoyed by news of monetary stimulus from China, the world's top oil importer, and concerns over potential disruptions to Middle Eastern supplies, while a looming hurricane threatened U.S. crude production.

As of 0620 GMT, Brent crude futures for November delivery increased by 84 cents, or 1.14%, to $74.74 a barrel. U.S. West Texas Intermediate (WTI) crude for November rose 92 cents, or 1.31%, to $71.29 a barrel.

"WTI gained ground this morning after China lowered its key lending rates. The oil market has been anxiously awaiting further easing measures from Chinese authorities to address the country's economic slowdown," said Tony Sycamore, a market analyst at IG. "Today’s move helps reduce some downside risks to oil prices."

However, the rally may face challenges in the medium term, with internal demand possibly remaining weak and accommodative monetary policies not being accompanied by expansive fiscal measures, according to Kelvin Wong, senior market analyst at OANDA.

Earlier, China’s central bank introduced its largest stimulus package since the pandemic, aiming to boost the economy and meet its growth targets. While the package, which includes additional funding and rate cuts, is a step forward, analysts believe further fiscal support is needed to achieve these goals.

In the Middle East, rising tensions added to market worries. Israel's military carried out airstrikes on Hezbollah targets in Lebanon on Monday. Lebanese authorities reported 492 casualties and mass evacuations, marking one of the deadliest incidents in the region in decades. The escalation followed the explosion of communication devices used by Hezbollah, an incident widely attributed to Israel.

"The oil market is concerned that escalating tensions in the region could bring OPEC member Iran closer to involvement," ANZ bank noted.

Meanwhile, weather concerns in the U.S. added to market volatility. A developing storm in the Atlantic could intensify into a hurricane by the end of the week, threatening oil production along the U.S. Gulf Coast. Several oil companies have already begun evacuating staff from platforms in the Gulf of Mexico, where operations are likely to be disrupted by the second major hurricane in two weeks.