Asian stocks bounce on AI trade, oil dips on Middle East hopes

Asian stocks rallied on Tuesday, recovering from the previous day's rout as investors returned to AI-related tech shares, while easing Middle East tensions weighed on oil prices.

Seoul's Kospi led gains, reclaiming most of the 8.3% lost on Monday, when a rout sparked by bets on a US rate hike and fears over tech valuations had swept markets. The bounce was driven by bargain buying in AI-linked stocks, particularly after Broadcom's disappointing revenue forecast had triggered a selloff. Meanwhile, oil prices eased as reports of progress in Middle East peace talks reduced the risk premium. For fuel traders tracking real-time prices, NowPrice's live quotes show Brent crude dipping below $80 a barrel, reflecting the shifting sentiment. The decline in oil also comes amid ample OPEC+ spare capacity, estimated at over 5 million barrels per day, which continues to cap price gains despite geopolitical risks. Additionally, the Brent-WTI spread has narrowed to around $4 per barrel, signaling balanced supply dynamics in the Atlantic Basin. US Strategic Petroleum Reserve levels remain near 370 million barrels, providing a further buffer against supply disruptions. The crack spread—the difference between crude oil and refined product prices—has weakened, with gasoline margins falling as seasonal demand wanes, putting additional downward pressure on crude. In China, the world's largest crude importer, marginal demand has softened due to slower economic growth and increased use of alternative fuels, further weighing on the global oil outlook. Saudi Arabia and Russia, the de facto leaders of OPEC+, have maintained their coordinated output cuts, but the market's focus has shifted to potential unwinding of these cuts later this year, which could add to supply. The futures curve has moved from backwardation to contango for near-term contracts, indicating that traders expect ample supply and are willing to pay a premium for storage.

Looking ahead, markets will focus on US inflation data due later this week, which could influence the Federal Reserve's policy path. Any further easing of geopolitical tensions may keep oil under pressure, while the sustainability of the tech rally hinges on earnings from major AI players. Traders will also monitor weekly US inventory reports for signs of demand strength, as well as any commentary from OPEC+ officials regarding their production strategy for the second half of the year. The interplay between macroeconomic data and geopolitical developments will likely determine whether oil can hold above $80 or test lower levels.