Oil steadies as traders assess Mideast risks, China stimulus

September 30, 2024 (MLN): Oil steadied on Monday as China's efforts to support its economy offset tensions following the fallout from Israel's killing of Hezbollah's leader over the weekend.

Brent crude traded near $71.46 per barrel after falling 3.7% last week.

While West Texas Intermediate crude (WTI) was at $67.95 per barrel.

Hezbollah chief Hassan Nasrallah was killed in an air strike on Lebanon’s capital Beirut, dealing a major blow to the group and its sponsor, Tehran, Bloomberg reported.

Israeli jets also bombed targets in Yemen after attacks on the country this month by Iran-backed Houthi rebels.

Crude remains lower this year as heightened tensions in the Middle East have so far failed to escalate into an all-out confrontation that could threaten oil supplies from the region.

At the same time, global production remains ample, with OPEC+ planning to relax output curbs. China’s slowdown has hurt demand, although Beijing has recently added stimulus.

“Our tools suggest the geopolitical risk premium in oil prices remains limited,” Goldman Sachs analysts including Daan Struyven wrote in a report. “The market is likely shifting from an equilibrium where OPEC supported spot balances and reduced volatility to a more long-run equilibrium focused on strategically disciplining non-OPEC supply and supporting the group’s cohesion.”

Oil’s initial gain in the week’s opening session came as Beijing’s initiatives to aid growth helped other industrial commodities to push higher, with crude rising alongside copper and iron ore.

Since the outbreak of the war in Gaza almost a year ago, oil traders have been been on alert for actual disruptions to supply, especially at times of heightened friction between Israel and Iran.

While Houthi attacks in the Red Sea have forced some tankers to go around southern Africa — lengthening voyages — crude output from the region has been largely unscathed.

“Some oil market participants will look past this escalation given that there still has not been a major physical supply disruption and Iran has not demonstrated any appetite to enter this nearly yearlong conflict,” RBC Capital Markets LLC analysts including Helima Croft said in a note.

“And yet, it is extremely difficult to see where this regional conflict is headed, and whether this is the beginning of the end, or the end of the beginning,” the analysts said.

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