Crude oil extended its sharp losses for the second day in a row on Tuesday, with both Brent and WTI down more than 1.6%.
The continued declines in crude come despite the loss of 1.2 million barrels per day of production flowing from Libya, also amid the absence of any immediate prospect for a settlement to the Gaza conflict that could defuse a wider regional war.
However, the absence of catalysts from China and the eurozone keeps concerns about the future of oil demand, keeping prices under continued downward pressure.
All of Libya’s oil export terminals have been closed due to the escalating political conflict there, causing the loss of 1.18 million barrels of oil per day, according to Reuters.
Geopolitically, the picture may look a little mixed in the Middle East. While the rounds of negotiations did not lead to any breakthrough and we witnessed more chapters of military escalation over the weekend, the status quo may not change in light of the current developments.
After the mutual attacks between Hezbollah and Israel last Sunday, both sides showed signs of not intending to push for a wider regional escalation and that each sees what happened as a victory of sorts and restoring balance to the deterrence equation, according to what research centers told The Wall Street Journal earlier this week.
Meanwhile, the United States has strengthened its military presence in the region through 18 naval vessels, including two aircraft carriers and a nuclear-powered submarine, according to Axios. The substantial military presence might incentivize the Israelis to leverage any Iranian attack on Israel as a means to draw the US into a prolonged regional conflict, further escalating tensions in line with the interests of Prime Minister Benjamin Netanyahu and his far-right coalition.
While we will wait for the results of the next rounds of negotiations to know whether the region will move towards calm or remain stuck in the current situation, which may keep the door open for more surprises.
On the economic side, this week does not carry much decisive data, especially from China. However, what we have seen from Germany reinforces pessimism about the future of growth in the Eurozone.
Business sentiment declined in both the manufacturing, trade and services sectors according to the Ifo Business Climate survey, and consumer sentiment deteriorated as a result of lower income expectations according to the GfK Consumer Climate survey. These surveys also come after the S&P Global PMI reports from last week, which did not show any signs of the region’s economy regaining growth soon.
While the continued weakness of the eurozone economy contributes to weak external demand in China, which may ultimately be reflected in demand for crude and keep prices under pressure as well.
