Biden Administration’s Response
President Biden has pledged a response to the attack and intends to hold those responsible accountable. Anas Alhajji, an independent energy expert at Energy Outlook Advisors, believes that any retaliation by the Biden administration is unlikely to impact the oil markets. He emphasized that the U.S. cannot take action that would drive up oil prices. Considering the impact on oil prices, global benchmark Brent crude for March delivery traded at $82.66 per barrel on ICE Futures Europe, down 1.1% from its settlement on Friday, which was the highest since early November. U.S. benchmark March West Texas Intermediate crude fell 1% to $77.26 per barrel on the New York Mercantile Exchange.
China’s Economic Concerns and Oil Demand
Michael Hewson, chief market analyst at CMC Markets UK, attributes the decline in oil prices to concerns over Chinese oil demand. China’s crude imports had decreased to a four-month low of 10.37 million barrels per day in November. However, they rose by 10% month-on-month in December to 11.44 million barrels per day, according to data from China’s General Administration of Customs. China’s GDP only expanded by 5.2% in 2023, one of the lowest levels in decades. Evergrande Group, a property-development giant, was recently ordered by a Hong Kong court to liquidate after failing to reach a restructuring deal with creditors. Alex Hodes, an energy analyst at StoneX, notes that China’s increase in oil demand from 2022 to 2023 was due to the removal of COVID-19 restrictions, rather than natural growth.
Outlook for Oil Prices
Hodes expects a “tale of two halves” for oil prices this year. The first half is likely to witness tightening in the oil market due to OPEC+ production cuts and geopolitical factors. However, in the latter half, markets are expected to loosen, resulting in price retracement and an overall sideways market for the year. Potential supply disruptions could be offset by OPEC’s significant production capacity on standby, estimated to be around 6 million barrels per day.