- Energy traders’ attention is divided between Middle East tensions and China’s stimulus, Dan Yergin says.
- “You see the oil price oscillating between the two of those,” Yergin says.
- Oil is in a holding pattern as markets assess the impact of China stimulus and eyes further escalation in the Middle East.
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Energy traders’ attention is split between two forces with the potential to impact prices, energy expert Dan Yergin says.
Yergin said Tuesday that traders are looking to China for signs of future demand while also bracing for disruptions amid ongoing geopolitical issues in the Middle East.
“I think right now the energy markets are really schizophrenic,” Yergin told CNBC in an interview.
Yergin, vice chairman of S&P Global, says the market’s focus is two-sided, switching between potentially promising stimulus in China and rising geopolitical risks in the Middle East.
“You see the oil price oscillating between the two of those,” Yergin said.
On the one hand is China, which for the last two decades has made up half of the growth in world oil demand. That’s been challenged in recent years as the country faces a sluggish economy and weak consumer demand.
Measures rolled out after the initial stimulus announcement last month have helped China’s prospects of getting out of its slump, he says.
“There does seem to be a little more confidence now that wasn’t there at the beginning about the Chinese stimulus measures, that they may actually have an appreciable impact on economic activity and demand,” Yergin said.
The most recent measures from Beijing include funding programs that will inject as much as 800 billion Chinese yuan, or $112.6 billion, into its stock market, as well as a series of interest rate cuts.
On the other hand, the market is also focused on uncertainty about the conflict in the Middle East, and if the war will actually impact oil infrastructure in the region, Yergin says.
He says that’s especially true after last week when Israel killed its top target, Hamas leader Yahya Sinwar.
“I think it’s even more dangerous, because, of course, it’s really a waiting period. When will the Israeli retaliation against Iran occur, is it tomorrow? The next day? Is it after the presidential election? That part is unclear, and Iran has threatened to retaliate again,” Yergin said.
Yergin says the market is stuck in a state of “wait and see” as it assesses how the war could disrupt oil infrastructure. He adds that while the conflict was previously a proxy war, it could now become a direct conflict, raising the stakes even higher for the Middle East’s oil market.
As a result of these two forces, and with traders waiting to see which could have a greater impact on supply and demand dynamics, the oil market is in a holding pattern. Prices have seesawed between the low $70 level and around $80 as traders react to new developments. Brent crude, the international oil benchmark, was trading about 1% lower on Wednesday at $75.30.