Investing.com– Oil prices fell in Asian trade on Wednesday, hitting lows seen before the Israel-Hamas war as a strong dollar and weak economic signals from China presented a dour outlook for crude markets.
Crude prices slumped over 4% in the prior session, hitting their lowest levels since late-July as Bloomberg data showed that Russia’s oil exports hit a near four-month high over the past month, raising doubts about just how much supplies will tighten this year .
Recent data also showed production by the Organization of Petroleum Exporting Countries (OPEC) rose in October, even as Saudi Arabia and Russia vowed to maintain ongoing supply cuts until the end of the year.
This was accompanied by data showing consistent economic weakness in top crude importer China. While the country’s oil imports remained steady in October, a bigger-than-expected decline in overall exports pointed to sustained weakness in its biggest economic engines.
China’s fuel exports also declined, as local refiners appeared to be reaching the end of their export quotas.
China has built up its oil inventories steadily this year, which could see a reduction in its crude appetite over the coming months. Inflation data from the country, due on Thursday, is expected to offer more insight into the economy, which has been largely struggling this year.
Brent oil futures expiring January sank 0.3% to $81.43 a barrel, while West Texas Intermediate crude futures due in December fell 0.4% to $77.03 a barrel by 20:21 ET (01:21 GMT).
Oil markets shed war premium /h2
Adding to pressure on oil markets, traders continued to price in a substantially lower risk premium from the Israel-Hamas war, amid dwindling expectations that it will meaningfully disrupt Middle Eastern oil supplies.
Losses this week saw oil prices shed all of the risk premium from the conflict, while continuing a downward trend seen since late-September.
“Oil prices are reflecting the view that a 1973-style Arab embargo on oil exports is an extremely unlikely response to the crisis in Gaza. They signal Middle East producers keeping oil shipments flowing and geopolitics separate as the only rational scenario,” analysts at S&P Global wrote in a recent note.
Dollar rebound weighs with Powell speech in sight /h2
A sustained rebound in the dollar, from six-week lows, also weighed on oil markets this week, as a slew of Federal Reserve officials downplayed expectations that the central bank will not raise interest rates further.
Expectations of a Fed pause had grown following less hawkish signals from the Fed and weak nonfarm payrolls data last week. But central bank officials speaking this week warned that resilience in the US economy and sticky inflation could elicit a higher policy rate from the Fed.
On that end, this week’s focus is squarely on a speech by Fed Chair Jerome Powell later in the day, and another talk on Friday. Markets will be waiting to see whether Powell maintains his hawkish rhetoric, given that the Fed chair has warned that US rates will remain higher for longer.
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