Oil prices increased on Monday as escalating tensions in the Middle East fueled concerns of potential supply disruptions. However, gains were limited due to worries surrounding China's sluggish economic recovery.
Brent crude futures rose by $0.56, or 0.9%, to $62.27 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures were up by $0.47, or 0.8%, at $59.34 per barrel.
These gains were driven by rising geopolitical tensions in the Middle East. The world's largest crude oil exporter, Saudi Arabia, reported that it intercepted an explosive-laden drone launched by Yemen's Houthi rebels towards the country's southern region. This incident follows a series of attacks on Saudi oil facilities and ships in recent weeks, causing concerns about the stability of oil supplies from the region.
Additionally, the ongoing negotiations between the United States and Iran to revive the 2015 nuclear deal have added to the geopolitical uncertainty. If an agreement is reached, it could result in increased Iranian oil exports, further influencing global oil prices.
However, the gains were somewhat curtailed by worries over the Chinese economy. China, the world's second-largest oil consumer, recorded slower-than-expected growth in the first quarter of 2021. The country's gross domestic product (GDP) expanded by 18.3% compared to the previous year, falling short of market expectations of 19% growth. Concerns arise that this slower growth could impact oil demand, as China plays a significant role in global energy consumption.
Furthermore, China's efforts to control rising commodity prices have also contributed to market uncertainty. The Chinese government recently announced measures to curb inflation, including cracking down on speculation and hoarding in commodity markets such as copper and iron ore. These moves have raised concerns that China's demand for commodities, including crude oil, may weaken in the short term.
Despite these concerns, the overall market sentiment remains positive, given the global economic recovery and the gradual easing of COVID-19 restrictions in many countries. Vaccination efforts continue to progress, raising hopes for a rebound in fuel demand as travel and economic activity resume.
Investors are closely monitoring the upcoming OPEC+ meeting on April 28, where major oil producers will discuss production levels for May and beyond. Any decisions made during this meeting, particularly regarding supply increases, may have a significant impact on oil prices in the coming months.
In summary, oil prices rose on Monday due to escalating tensions in the Middle East, raising concerns about potential disruptions in oil supplies. However, gains were limited by worries over China's economic recovery, which could impact oil demand. Despite these factors, the overall market sentiment remains positive, driven by the global economic recovery and progress in vaccination efforts. Investors will be closely watching the upcoming OPEC+ meeting for further guidance on future production levels.
