Oil prices rise on geopolitical tensions, with negative impact on crude supply. In contrast, demand outlook in China remains weak. Brent crude rose above $75 per barrel in the global commodity market on Monday.

The US WTI climbed to $71.11 a barrel, respectively. Brent is enjoying a limited rebound after falling below $70 a barrel earlier in September, ING said in a note.

Escalating tensions in the Middle East have brought back risk premiums, though concerns around the level of global demand are still pressing, ING commodities strategist Ewa Manthey and Warren Patterson said.

Resulting in crude oil supply tightening from the Middle East, Israel and Lebanon-based militant group Hezbollah accelerated cross-border attacks overnight into Sunday, raising the possibility of all-out war.

Meanwhile, sentiment from China appears to be improving somewhat after the People’s Bank of China lowered the reverse repo rate by 10bp along with the possibility of other measures to support economic growth.

Analysts at ING said China has issued the third and possibly final batch of export quota for oil products for the current year.

Beijing also approved 8mt of exports of gasoline, diesel and jet fuel in the latest quota, pushing the total approved exports limit to 41mt for the current year, marginally higher than the 40mt limit set for 2023.

Additionally, China has also issued 1mt of export quota for low-Sulphur fuel oil with a cumulative quota of around 13mt for the current, down 2% year-on-year.

The latest positioning data shows that speculators returned to the oil market at lower prices, ING stated. Similarly, speculators trimmed net shorts in ICE Brent by 4,539 lots over the week to leave them with net shorts of 8,141 lots as of 17 September.

China is likely to roll out more rate cuts this year, according to Larry Hu, head of China economics at Macquarie. The financial services company describes the PBOC’s strategy as “hang in there until the Fed blinks”.

Now that the Fed has blinked, the PBOC’s strategy will change accordingly, likely focusing more on fighting deflation, Hu says.

Looking ahead, given the deflationary pressures, the analyst expects China’s central bank to cut the policy rate by 20 bps by end-2024, and the reserve requirement ration by 50 bps by end-2024, as well as the outstanding mortgage rate.

Elsewhere, Hurricane Francine’s impact on the US Gulf Coast, a major energy hub, increased oil prices as production disruptions curtailed supply.

The latest data from the American Petroleum Institute (API) showed a rise of 1.96 million barrels in US commercial crude oil inventories, contrary to market expectations of a 100,000-barrel drop. The reserve rise reflected market perceptions of weakening domestic demand, driving prices down.

On Wednesday, the Fed lowered its interest rate by 50 basis points to a range of 4.75%-5.0%, starting its monetary easing aggressively. The move marked the first rate cut by the central bank in more than four years, since the beginning of the coronavirus pandemic.

The Fed also indicated that it plans to cut interest rates by an additional 50 basis points by the end of this year. Interest rate cuts typically boost economic activity and oil demand.

Meanwhile, US commercial crude oil inventories decreased by around 1.6 million barrels to 417.5 million barrels, the lowest level in almost a year. Over the same period, gasoline inventories rose by around 100,000 barrels to 221.6 million barrels.

The market players are also keeping an eye on events in the Middle East, where a vast majority of oil reserves are located. Renewed tensions in the key producing region increased concern for a possible output disruption and supported upward price movements.

Global oil markets remain focused on signs of weakening demand in China and the possibility of increased supply from the OPEC+ group.

Meanwhile, economic challenges in the US are also weighing on oil prices, with recent data showing non-farm employment increasing by 142,000 in August, while the manufacturing sector has contracted for seven consecutive months.

Despite anticipated declines in global demand, ongoing concerns about major producers ramping up supply continue to impact prices.

The Organization of Petroleum Exporting Countries (OPEC) and its allies, known as the OPEC+, previously agreed to extend oil production cuts to November as crude oil and fuel prices continued to fall.