Oil Prices Rise Amidst Economic Stimulus and Middle East Tensions

Oil prices settled higher Tuesday, supported by additional monetary stimulus from China, which boosted hopes for global oil demand, amid escalating conflict in the Middle East that risks supply disruptions.

At 2:30 p.m. ET (18:30 GMT), West Texas Intermediate crude futures rose 1.7% to settle at $71.56 a barrel, while Brent oil futures increased by 1.8% to $74.50 a barrel.

Chinese Stimulus Supports

Crude prices experienced a sharp increase after Chinese officials announced a set of planned measures to stimulate economic growth.

The People’s Bank of China (PBOC) is set to cut reserve requirements for banks by 50 basis points to unlock more liquidity, and the government plans to reduce mortgage rates for existing loans to aid the struggling property market. These actions follow the PBOC’s recent decision to lower a short-term repo rate on Monday to enhance liquidity further.

As the largest importer of crude globally, China’s economic slowdown has raised concerns about future demand.

Middle East Tensions and Supply Disruptions

The crude market also gained due to ongoing conflicts in the Middle East showing no signs of de-escalation. Israel’s attacks on Hezbollah-linked targets in Lebanon and continued military actions against Hamas in Gaza have raised concerns about a broader conflict disrupting oil supplies.

Additionally, in the U.S., the focus remains on tropical storm Helene, marking the second significant storm to impact the Gulf of Mexico this month after Hurricane Francine, increasing the risk of supply disruptions in the region.

Middling PMIs Weigh on Demand

The combination of this news and optimism regarding lower interest rates has allowed prices to recover from near three-year lows. However, mixed readings on business activity from numerous major economies are raising concerns over slowing oil demand.

Data from the U.S., eurozone, and Japan’s purchasing managers index (PMI) showcased mixed performances which could indicate a slowdown in manufacturing activity, potentially leading to decreased demand for crude.

While service sector growth shows some resilience, the potential extended slowdown in manufacturing raises concerns for crude demand. Investors hope that interest rate cuts from major central banks will help mitigate this trend.