Key points:

  • Oil prices fell on Monday by 0.3-0.5%.
  • The main factors behind the decline were concerns about the global economy and decreased demand for oil.
  • Military operations continue in the Middle East, but they haven’t yet had a significant impact on commodity prices.

Global oil prices continued to decline on Monday as concerns about weakening economic growth outweighed geopolitical tensions in the Middle East.

Brent crude futures fell 23 cents to $78.33 a barrel, extending Friday’s 54-cent drop. West Texas Intermediate crude futures for February delivery lost 28 cents to $73.13 a barrel, with the contract set to expire later on Monday. The more active March WTI contract was trading at $73.04 a barrel, down 21 cents.

In the absence of any significant escalation in the Middle East, oil prices are likely to remain range-bound with a downward bias. The ongoing conflict in the Gaza Strip, coupled with the recent US strike on Houthi militants, has heightened geopolitical tensions in the region.

However, persistent disruptions to global trade caused by Iranian attacks in the Red Sea and Gulf of Aden continue to support oil prices to some extent. These attacks have tightened the supply situation in both the European and African crude oil markets, and have also impacted overall trade along the maritime route.

Attacks on Red Sea shipping put pressure on Chinese exporters

Chinese small and medium-sized enterprises (SMEs) are facing a significant threat to their survival due to disruptions in shipping through the Red Sea.

The cost of shipping a container from China to Europe has skyrocketed from $3,000 to a staggering $7,000 since Houthi rebels in Yemen intensified their attacks on maritime vessels.

Prime Minister Li Qiang, while addressing the World Economic Forum in Davos, underscored the importance of maintaining “stability and continuity” in global supply chains, implicitly acknowledging the challenges posed by the Red Sea disruptions.

In response to these disruptions, some companies, such as US-based BDI Furniture, have begun sourcing products from alternative manufacturing hubs like Turkey and Vietnam. This diversification strategy aims to mitigate the impact of disruptions and reduce reliance on Chinese suppliers amid geopolitical tensions.

Further disruptions in the Red Sea could exacerbate the already fragile state of the Chinese economy, which is grappling with a housing crisis, waning consumer demand, an aging population, and sluggish global growth.