The oil price has fallen sharply this week. On the one hand, the market does not expect that geopolitical tensions between Israel and Iran will lead to lower oil supply. In addition, recent indicators of the Chinese economy are disappointing.
The oil price has taken a significant step downwards this week. On Thursday, April 11, oil traded at $89,74 per barrel. A day later, oil prices rose to their highest point of the week at $90,45. Then the oil price started to fall sharply. On Wednesday, April 17, the price dropped to $87,29.
A main reason for the lower price is that the market no longer believes that a war between Israel and Iran could disrupt supply. According to analysts, there was considerable tension in the market after Israel's alleged attack on an Iranian consulate. It helped that Iran had announced strong retaliation. That attack came on Thursday, April 13. A total of 350 drones and missiles were fired at the country. There is considerable debate about the intentions behind the rocket rain. Some experts believe that Iran deliberately fired the missiles in such a way that Israel's famed missile defense shield could easily intercept the attack. In this way, Iran would show strength, while also preventing an excessive escalation of the conflict.
For the time being, Israel is adhering to international calls for restraint. Although Prime Minister Benjamin Netanyahu emphasized that Israel decides how to defend itself, the market is leaning toward a muted response. It helps that both the United States and the European Union are considering tougher sanctions on Iran. This is interpreted as an attempt to encourage Israel to exercise restraint. At the same time, analysts do not expect the United States to increase sanctions on Iranian oil. This could lead to higher US gasoline prices, which could hinder President Joe Biden's re-election later this year. That is why the oil market is confident that the country will not hit back hard. In addition, geopolitical analysts believe that Israel is unlikely to launch an attack on Iran's oil infrastructure.
Weaker economy
In addition, economic results appear not to be as strong as expected. In China in particular, signals are emerging that the economy is developing less strongly than seemed to be the case until recently. Optimism recently emerged about the growth of the Chinese economy, as growth in the first quarter turned out to be stronger than expected. Compared to the first quarter of 2023, the economy grew by 5,3%. This means that the Asian country is well on its way to achieving its target of 5% for the current year.
However, new data for March paint a less optimistic picture. Various indicators, such as investments in the real estate sector and retail sales figures, do not paint a very positive picture. Analysts expect that strong economic growth will not continue. In addition, budget deficits of local governments are increasing rapidly. That makes it more difficult for the Chinese market to stimulate the economy. Due to the weak results, there are expectations that consumption of the world's largest oil importer will turn out to be lower than expected.
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The price of diesel has also taken a significant step downward. On Thursday, April 11, diesel traded for €134,61 per 100 liters. Then the price fluctuated a bit, only to end up lower. On Thursday, April 17, the oil price fell to €132,62.