HG MARKETS:

On Wednesday, oil prices experienced a notable decline, driven primarily by persistent concerns over weak demand from China and the looming threat of a broader economic slowdown. West Texas Intermediate (WTI) crude futures fell by 60 cents, or 0.79%, to settle at $74.93 per barrel. This decrease follows a more than 2% drop observed on Tuesday, despite a substantial 7% increase in prices over the preceding three days. The market’s current focus has shifted towards potential supply disruptions from the Middle East and Libya, though the impact of these disruptions has been mitigated by ongoing concerns about sluggish demand in China and the lack of a substantial economic rebound in the latter half of the year. In the U.S., recent data showed a decrease in oil and fuel inventories, which provided some support to oil prices. Specifically, crude oil inventories fell by 3.407 million barrels for the week ending August 23^rd and both gasoline and distillate inventories also declined. This reduction in inventories is seen as a positive indicator for the oil market. However, the primary risks that continue to influence oil prices are the potential reduction in Libyan oil production and the possible escalation of the Israel-Gaza conflict involving Iranian-backed Hezbollah militants from Lebanon. Libya’s oil production is particularly vulnerable due to an ongoing dispute between rival government factions over control of the central bank and oil revenues. This political instability has led to a halt in production at several oilfields, putting approximately 1.2 million barrels per day of output at risk. Although there has been no official confirmation from either the Tripoli-based government or the National Oil Corporation (NOC) regarding the specifics of these production halts, investors are closely monitoring the situation for any signs of a decrease in Libyan crude exports, which would have a more pronounced impact on the global oil market. Meanwhile, the conflict between Israel and Hamas continues to create uncertainties in the region. Hostilities persist in the Gaza Strip, with no significant progress in ceasefire negotiations. Over the weekend, tensions escalated with exchanges of fire between Israel and Hezbollah militants across the Lebanese border. This ongoing regional conflict adds to the geopolitical risks affecting oil markets, as any further escalation could potentially disrupt supply routes and impact global oil prices.