While the gloomy economic forecasts in China and Europe threaten to plunge the price of black gold, geopolitics has suddenly regained its rights. This Monday, oil prices jumped by more than 3% in the wake of new clashes between the United States and Iran, and the advance of Israeli troops in Lebanon, dashing hopes of an imminent reopening of the Strait of Hormuz.
Goldman Sachs’ warning: plummeting demand
On paper, all macroeconomic indicators pointed to a structural decline in energy prices. According to a recent analytical note from the investment bank Goldman Sachs, the persistent weakness of oil demand in China and Europe now constitutes the main threat to its own forecasts for the fourth quarter. The institution has so far been counting on a barrel of Brent at $90 and light American crude (WTI) at $83.
But the market reality turns out to be much more gloomy. Data relating to retail sales for the month of April, from China and Western Europe, reveal a dizzying deficit of around two million barrels per day compared to Goldman Sachs’ already cautious estimates. A poor performance which, from a purely mathematical point of view, could reduce Brent price forecasts by around ten dollars per barrel.
The loss of steam is particularly palpable in the Asian industry. “Weak demand for petrochemical raw materials across Asia is reflected in falling ethylene plant utilization rates and declining industrial production in the chemical sector in China and Japan.”underline the bank’s analysts. In India, consumption of naphtha and liquefied petroleum gas (LPG) fell by 150,000 barrels per day in April, on an annual basis.
On the side of motorists, the situation is hardly any more rosy: fuel consumption indicators remain very low in China and in several European countries, although demand is showing a certain resilience in the United States and India.
Soaring prices: geopolitics takes over
However, this downward dynamic induced by the real economy was swept away in a few hours by the hot news from the Middle East. The investment bank had also anticipated this, warning that supply disruptions linked to regional tensions would continue to push prices upwards.
This Monday, the markets were shaken by mutual bombings between Iran and the United States. At the same time, the Israeli army was ordered to move deeper into Lebanese territory as part of its open war against Hezbollah, the militia supported by Tehran.
The result on the financial markets was stunning. Around 07:01 GMT, US crude (WTI) futures soared $2.88 (an increase of 3.3%) to reach $90.24 per barrel. North Sea Brent followed the same trajectory, jumping $2.78 (+3.05%) to settle at $93.9 per barrel.
The mirage of a long-lasting Iranian-American truce
This brutal military escalation has shattered the optimism that was just beginning to take hold in the trading rooms. In recent days, investors have been betting on the conclusion of a long-term ceasefire between Washington and Tehran. This peaceful prospect had even pushed financial players to reduce their positions and draw on physical stocks, anticipating an imminent reopening of the very strategic Strait of Hormuz, a real artery of global oil trade.
But the cannons silenced diplomacy. While Washington hosted talks on Friday between Israeli and Lebanese representatives, the immediate upsurge in violence on the ground definitively dashed hopes. Expectations that the United States and Iran will soon announce an extension of their fragile ceasefire agreement are collapsing, leaving the oil market sailing blind, caught between an economic slowdown and the specter of a total regional conflagration.
