Chinese manufacturing activities picked up in September
www.oilfutures.co.uk
The price of crude oil is still on a downward trajectory despite the volatility in the Middle EAST and some encouraging news about the Chinese economy.
As for the Middle East, the IDF, Israel Defence Forces, made an incursion into Lebanon on Monday night while bringing the weeks-long speculation to an end; Israel did not want it to be known as a full-scale invasion, exactly like they did in the early 1980s.
In a matter of few days, defying the military analysts, Israel almost destroyed the upper echelons of Hezbollah, the Shia military group along with its charismatic leader in Lebanon. The development left Iran, the financial and moral backer of these proxies in the Middle East including Hamas, in the lurch; it looks like Iran is now exposed as never before in decades.
In the current circumstances, it is highly unlikely that Iran will pursue a military campaign to show the region - or the world for that matter - who the real boss in the region is. The two huge blows suffered by Hamas and Hezbollah appeared to have force Iran to reevaluate its strategy, especially when the economy keeps shrinking with the frustration of ordinary people remaining really high.
In this context, the coded warning from Benjamin Netanyahu, the Israeli prime minister on Monday must have made matters worse for the Iranians; while addressing the Iranian people in a video message, the Jewish leader laid bare his plans for the Iranians with unbelievable confidence; for obvious reasons, he did not spell out his strategy; nor did he set a time frame for a change, but implied it may be much quicker than they anticipated.
Since Iran does not seem to be inclined to escalate the conflict to a critical level at present, there is no imminent danger to the flow of crude oil through the Strait of Hormuz; the presence of vast US military assets in the region has minimized the threat for the time being; it, however, can evolve if the circumstances change.
The investors and analysts of crude oil markets, in this context, do not consider the Middle Eastern factor as critical as it used to be in the past, when it comes to the calculations of the former. It partially accounts for the fall in the oil prices while the risks, at least still remains in the hypothetical realm.
On a positive note, China's substantial economic stimulus package that was announced recently seems to be making an impact on the economy: it was the biggest since the pandemic in 2020; share markets are buoyant and so is the housing market; China's manufacturing PMI, meanwhile, rose to 49.8% from the estimated 49.5, in September; although the economy is still shrinking, judging by the heightened manufacturing activity, the rate of slowing down is on decline.
Although the Chinese economic data is encouraging, its impact on the crude oil markets is barely noticeable. After all, China is the world's top importer of crude oil and second biggest consumer of the commodity after the US.
Some analysts believe that there is plenty of oil in the markets at present and the reason for the decline in price stems from this reality. In these circumstances, neither the tension in the Middle East nor resurgence in the Chinese economy is not powerful enough to prop up the prices right now.
