By Yuka Obayashi and Trixie Yap
(Reuters) – Oil prices extended losses in early trading on Wednesday, as concerns about global demand due to weak economic momentum in China and a likely increase in U.S. commercial inventories offset fears over supply linked to increased tensions in the Middle East.
Brent crude futures for June slipped 56 cents, or 0.62%, to $89.46 a barrel by 0337 GMT, while U.S. crude futures for May fell 63 cents, or 0.74%, to $84.73 per barrel.
Oil prices have fallen so far this week as economic headwinds pressure investor sentiment, dampening gains from geopolitical tensions, with eyes on how Israel might respond to the attack Iranian weekend.
“With oil prices highly sensitive to geopolitical risks, the past week has seen some wait-and-see consolidation as Israel’s response will determine whether there could be a broader regional conflict, which could have a significant impact on oil supply,” said the IG market strategist. Yeah, Jun Rong.
“For now, the near-term weakness in oil prices may reflect some expectations that tensions may still be contained and that other key oil producers such as Saudi Arabia may step in to soften any oil shocks. ‘global supply,’ Yeap added.
In China, the world’s top oil importer, the economy grew faster than expected in the first quarter, but several indicators in March, including real estate investment, retail sales and industrial production, showed that demand domestic market remained fragile, weighing on overall dynamics.
“Apart from that, an overnight build in U.S. crude inventories and a mixed set of economic data from China have also prompted some reservations, along with near-term overbought technicals that are leading to some profit-taking ” Yeap said.
U.S. crude oil inventories rose last week more than expected by analysts polled by Reuters, according to market sources citing figures from the American Petroleum Institute on Tuesday. Official data from the Energy Information Administration, the statistical arm of the US Department of Energy, is expected at 10:30 a.m. (2:30 p.m. GMT) on Wednesday.
In the Middle East, a third meeting of Israel’s war cabinet scheduled for Tuesday to decide a response to Iran’s first-ever direct attack was postponed until Wednesday, as Western allies consider swift new sanctions against Tehran for help deter Israel from a major escalation. .
Analysts, however, do not expect Iran’s unprecedented missile and drone attack on Israel to result in drastic sanctions on Iranian oil exports from the Biden administration, amid concerns regarding rising oil prices and the anger of the main buyer, China.
“Sanctions are already in place, the problem is that they have not been strictly enforced in the last two years. And the big question is whether they will be enforced more rigorously now,” ING analysts said in a customer note.
(Reporting by Yuka Obayashi in Tokyo and Trixie Yap in Singapore; editing by Sonali Paul and Miral Fahmy)