Oil prices fell on Tuesday as concerns about the impact of Syrian President Bashar al-Assad’s overthrow subsided. However, the market found support in China’s commitment to increase policy stimulus, which could boost demand from the world’s largest crude importer.
Brent crude futures dropped 26 cents, or about 0.4%, to $71.88 per barrel, while U.S. West Texas Intermediate crude futures fell 30 cents, also a 0.4% decrease, to $68.07 at 0707 GMT. Both benchmarks had risen more than 1% on Monday.
“The tensions in the Middle East appear to be under control, prompting market participants to assess the risks of significant oil supply disruptions as lower,” said IG market strategist Yeap Jun Rong.
Syria’s rebels were working to establish a government and restore order after Assad’s ouster, with the country’s banks and oil sector set to resume operations on Tuesday.
While Syria isn’t a major oil producer, its strategic location and strong ties with Russia and Iran mean that regime change could increase regional instability.
The power transfer marks the end of over 50 years of harsh Assad family rule following 13 years of civil war.
The market is also eyeing the possibility of a rate cut by the U.S. Federal Reserve next week, which could increase oil demand in the world’s largest economy.
The Fed is expected to reduce rates by 25 basis points during its meeting on December 17-18, though traders are awaiting inflation data this week to see if it will impact this expectation. “Oil markets have been driven more by demand than supply-side factors this year, and as a result, investors are cautious about taking speculative positions ahead of key policy decisions from the Fed,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.
Declines were limited by optimistic expectations regarding China’s economy, following reports that the country plans to adopt an “appropriately loose” monetary policy next year—the first such easing in 14 years—to stimulate growth in the world’s largest oil importer.
While there are high hopes for aggressive policy stimulus, oil price increases may remain restrained until there’s more clarity on the potential impact of Beijing’s measures on the country’s crude demand outlook, said Yeap from IG.
In a positive sign, China’s crude oil imports surged in November compared to a year earlier, marking the first annual growth in seven months. This was driven by lower prices for Middle Eastern supplies and stockpiling demand, according to data released on Tuesday.
