Oil Holds China-Induced Slump as Traders Watch Middle East

(Bloomberg) -- Oil steadied after tumbling the most in more than a year in the previous session on concerns around China’s economic outlook, with the market also watching for Israel’s response to Iran’s missile barrage last week.

Brent traded above $77 a barrel after losing 4.6% on Tuesday, while West Texas Intermediate was near $74. Beijing held back on major fresh stimulus after the nation’s return from a week-long holiday, compounding concerns about the trajectory for demand growth from the world’s biggest crude importer.

The slide in prices overshadowed nervousness about an escalation of hostilities in the Middle East, particularly a possible strike by Israel on Iran’s oil facilities. A visit to the US by Israel’s defense chief — billed as a chance for allies to craft a common strategy in a face-off against Tehran — has been postponed.

President Joe Biden has discouraged Israel from targeting Tehran’s oil fields, and Iran continued exporting crude from its main Kharg Island terminal. Still, markets remained on edge, with options in a bias toward calls — where buyers profit when prices rise — and volatility soaring.

Oil is facing a tug-of-war between fundamentals indicating a surplus in 2025 and geopolitical tensions, said Priyanka Sachdeva, a senior market analyst at brokerage Phillip Nova Pte in Singapore. Bearish headwinds include a weak Chinese economy and a plan by OPEC+ to increase supply, she said.

Morgan Stanley raised its Brent price forecast by $5 to $80 a barrel for the fourth quarter of this year on heightened geopolitical risk, but warned of a widening surplus in 2025. Demand is weaker than expected and supply has been robust, analysts including Martijn Rats said in a note.

In the US, the American Petroleum Institute reported crude stockpiles expanded by 11 million barrels last week. However, inventories of gasoline and distillates — a category which includes diesel — each declined.

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