The oil price fell this week after Western governments decided to focus on de-escalation in the war between Israel and Hamas. However, due to better economic prospects in China, there is also upward potential in the market. The Chinese economy seems to have found its way back to the top and the government is taking it one step further.
The oil price fell sharply at the beginning of this week, but then rebounded. At the end of last week, oil was trading at more than $92 a barrel. Until last Tuesday the price fell to €88. However, halfway through the week the oil price was on the rise again and the price for a barrel was around €90.
De-escalation
The decline in the oil market followed a series of high-profile visits to Israel and Palestine. Several representatives of the European Union this week called for a ceasefire to allow aid supplies into the Gaza Strip. In addition, French President Emmanuel Macron and Mark Rutte visited Israel. Rutte also visited Palestinian leader Abbas.
What is striking is that the tone of Western countries is starting to change. Initially, the emphasis was on unconditional support and the Israeli right to destroy Hamas. Western leaders now still speak of unconditional support, but in practice the emphasis seems to be on de-escalation. In that context, the position of Western leaders is shifting from unconditional support to a call for as few civilian casualties as possible. This gives traders the confidence that escalation of the conflict is not immediately obvious and thus creates some calm on the oil market. At the time of writing (Thursday, October 26), the oil price appears to be falling somewhat. Israel reportedly sent its first tanks into northern Gaza this morning. The oil price is not (yet) responding to the start of the ground offensive.
Chinese intervention
However, the conflict in the Middle East is not the only thing keeping the market busy. The increase in oil prices earlier this week followed an intervention in the Chinese economy. To give the economy a boost, the Chinese government has decided to increase the Chinese national debt by 1 trillion Yuan (approximately €130 million). The Chinese parliament has now approved the application for the bonds. The money will mainly be invested in infrastructure. This should strengthen domestic demand.
The investment comes on top of an economy that is generally doing better. After a weak first half of the year, the Chinese economy appears to be showing some more growth in the third quarter. At the moment, China seems to be getting pretty close to their 5% growth target. This is noticeable in the oil market. In September, the Asian country consumed 240.000 barrels per day more than it stored. This is in stark contrast to the August figures. In that month, China stored an average of 1.32 million barrels per day. According to analysts, extra demand is mainly causing the change.
Diesel price
The diesel price has fallen somewhat this week. On Thursday, October 19, diesel traded for €140,07 per 100 liters. The diesel price then rose to €141,29 on Friday, October 20. Later that week the price turned into a decline. on Wednesday, October 25, €100 was charged per 137,24 liters of diesel.