Oil prices settle lower as demand fears overshadow Middle East tensions

Investing.com– Oil prices settled lower Tuesday, as investors weighed worries about weaker demand against rising geopolitical conditions in the Middle East that threaten to potentially disrupt supplies.  

By 14:30 ET (19:30 GMT), the futures settled 1.3% lower at $78.18 a barrel and the contract dropped 1.4% to $82.43 a barrel.

Middle East tensions continue anew

Middle East tensions escalated further following a fresh attack on a UK commercial vessel in the Red Sea and ongoing fighting between Israel and Hamas in the Gaza strip. 

The U.S. has called for a temporary ceasefire in the war, and has also said that it opposes a major ground offensive by its ally Israel in the city of Rafah.

That said, Israel still appears set to march into Rafah, a move that would sharply worsen the humanitarian crisis in Gaza.

Fears of increased supply disruptions have been the biggest driving force for oil prices in recent weeks, although prices are still trading well below highs hit in early-2022. Concerns over slowing demand also saw crude prices clock a 10% decline through 2023. 

China-led demand concerns continue

Demand worries, led by softer economic growth in China, continued as the People’s Bank of China unexpectedly cut its on Tuesday, though held its one-year medium-term lending facility, a key lending rate, steady at 2.5%. 

The move to stay pat on rates kept concerns about sluggish economic growth in China, the second largest consumer of crude oil just as other global economies are also showing signs of struggle as the UK and Japan slipped into recession in Q4.

That said, prices remained underpinned by persistent concerns over supply disruptions in the Middle East, as the Yemeni Houthis continued to clash with U.S. forces, while the Israel-Hamas war raged on.

(Peter Nurse, Ambar Warrick contributed to this article.)