Oil Prices Plunge In October As Market Discards War Risk In View Of Slow Chinese Factory Activity

Persistent Drop in Crude Prices Amid Global Issues

The crude market took a second consecutive hit, and appears set to end the month of October with a sharp fall in the double digits. Optimistic investors who hedged against the Israel-Hamas war were caught off guard as the wider market did not consider the conflict severe enough to warrant a war risk premium. The overall sentiment in the market was untouched by the hostilities.

The less-than-stellar manufacturing activity in China, a leading importer of crude, added to the market's unease.

Ongoing Impact of the Israel-Hamas Conflict

The heavy fall in New York-traded West Texas Intermediate (WTI) crude meant that the price per barrel for December delivery was at $81.02, a 1.6% ($1.29) decrease on that day. This comes after a 3.8% drop on Monday. The US crude benchmark could also end the week with a 5% decrease and is on track for an 11% slump for the month, making it the worst one-month performance since May, which was immediately before Saudi-Russian production cuts resulted in a four-month oil rally.

Simultaneously, UK-origin Brent crude for the heaviest-traded contract in January was quoted at $85.16, down by $1.19, or 1.4%, at 15:00 Eastern US Time (19:00 Greenwich Mean Time). Brent too is on pace for an 11% monthly slump, marking its poorest monthly performance since August 2022.

Concerns over Federal Reserve's Actions

After a dismal week, oil started this week in a worse position with traders shifting their focus from the conflict in the Middle East to what actions the Federal Reserve may take at its interest rate decision meeting on Wednesday.

“The fact that crude prices have surrendered most of their gains since the outset of the Israel-Hamas conflict indicates a substantial drop in geopolitical risk-premium or a rise in global economic uncertainty, or possibly a mixture of both,” observed Craig Erlam, analyst at OANDA, a web-based trading platform.

Uncertainty in the Chinese Market

Stagnating manufacturing activity in China despite numerous stimulus measures from Beijing indicates that business activity is finding it hard to bounce back. This raises further questions about the rate at which Chinese oil consumption will grow this year in view of the deteriorating economy.