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Israel’s rather tepid response to the Iranian attack has considerably eased concerns of a full-blown Middle East war, and that has sent pacifying signals to the oil markets. Although, no immediate ceasefire scenarios are in play in Lebanon and Palestine – market participants have taken Israel’s response to Iran as an early sign of de-escalation. While Iran has vowed to retaliate, a repeat of the attack on a similar scale to the last one appears highly unlikely. Oil’s retreat by over 5 percent on Monday was the sharpest single-day decline in nearly five years, outside of peak Covid.

Some have gone as far as seeing the war risk premium on oil nearly abolished, as supply disruptions have not materialized. Israel’s decision to spare Iranian oil and nuclear facilities has surely fueled optimism. This is where all eyes turn back to China once again, with the prospects of a bigger and closer to market expectations economic stimulus is expected to materialize sooner.

Mind you, Chinese demand may well be struggling to regroup, the stimulus from the government has offered enough legs to maintain strong demand for the rest of 2024. The stimulus is now anticipated to be closer to a mammoth USD 2 trillion with chances of being bigger if Donald Trump gets reelected in the highly anticipated US presidential elections next month.

On the fundamentals front. supply glut is the number one cause of concern, especially for Opec Plus producers. Opec is once again cornered in a tight spot as it is due to make a call on rolling back the production cuts in a phased manner. The electric vehicles and LNG demand in the transport sector has taken many by surprise and is one reason why the World Bank sees global commodity prices tanking by as much as 10 percent in 2025. Of course, all of this is subject to no more widening of the Middle East conflict.

The key variable in the equation is now undoubtedly China, and the quantum and features of the upcoming stimulus will go a long way in setting the tone for international crude oil prices for much of 2025. Pakistan, meanwhile sits on the fence and watched it all unfold. Mind you, Pakistan authorities have refrained from increasing taxation on petroleum products, in a bid to stabilize prices and lower inflation. Authorities in Islamabad will be hoping the rub of the green goes their way.

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