Crude Oil Slips on Concerns Over Chinese Demand; Minimal Impact from Middle East Turmoil

Oil prices experienced a slight decline on Monday, with expectations of a third consecutive monthly drop due to concerns about slowing demand growth, despite rising tensions in the Middle East.

As of 07:55 ET, crude oil futures were down by 0.5% at $67.87 per barrel, while the WTI contract decreased by 0.3% to $71.32 per barrel.

### Little Impact from Escalated Middle East Tensions

The crude market initially saw an uptick on Monday after Israel intensified its attacks on Hezbollah and Hamas leaders in Lebanon, raising fears that Iran—a major oil producer and supporter of these groups—could become more directly involved in the escalating conflict. However, early gains fueled by concerns over potential disruptions to global oil supplies quickly faded.

Analysts from ING noted that the market has become largely desensitized to regional tensions, maintaining that despite nearly a year of conflict, oil production has not yet been affected. They cautioned that a deeper involvement from Iran could heighten the risk of supply disruptions.

### Economic Uncertainty in China

This month, oil prices have been significantly impacted by worries that a slowing global economy, particularly in China, may result in weaker demand than previously anticipated. Both the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have recently reduced their forecasts for 2024 oil demand, attributing the downgrade to diminished demand from China.

Recent data revealed that China’s manufacturing activity contracted for the fifth consecutive month, with the services sector also showing a notable slowdown in September. This indicates that Beijing may need to implement further measures to stimulate its economy, which is the world’s second-largest and top oil importer, despite introducing a series of stimulus measures just a week prior.

Brent crude is poised to drop nearly 10% month-over-month, marking its largest decline since November 2022, while the WTI contract is predicted to fall by over 8%.

### Upcoming OPEC+ Meeting

The OPEC and allied nations, commonly referred to as OPEC+, are scheduled to convene for a Joint Ministerial Monitoring Committee meeting on Wednesday. Currently, OPEC+ is implementing output cuts of 5.86 million barrels per day, which accounts for around 5.7% of global demand. Earlier this month, the group postponed its plan to increase production following a drop in oil prices to a nine-month low.

ING analysts indicated that, given the group has already set production targets through the end of November, it is unlikely that the upcoming meeting will result in any significant policy changes.