Crude oil prices experienced a significant decline of over 5% on Monday before stabilizing during the Asian trading session. This drop followed reports indicating that Israel had refrained from targeting Iranian oil or nuclear facilities in response to Iran’s ballistic missile attack on October 1. According to Iran’s state media, the country’s oil production remains unaffected and is operating normally.
The news regarding limited military operations alleviated fears of a potential all-out conflict in the Middle East, which could have severely disrupted crude oil supplies. Michael Brown, Senior Research Strategist at Pepertone in London, noted in a report, “This could indeed be a situation similar to April, where a degree of face has been saved on both sides, and tensions may now begin to subside, even if only in the short term.” Brown suggested that this easing of tensions could lead to a decrease in the risk premium associated with crude oil, impacting market dynamics negatively for bullish traders, especially given the already bleak demand outlook.
By 8 a.m. CET, the Brent January contract had dropped by 4.06% to $72.56 per barrel, while the West Texas Intermediate (WTI) December contract fell by 4.42% to $68.63 per barrel. Both benchmarks reached their lowest levels since October 1.
Economic Concerns Resurface
Oil prices have seen volatility throughout the year, swaying between bullish and bearish influences. Weak demand projections, particularly amid an economic slowdown in China, have weighed heavily on the oil market. While geopolitical tensions in the Middle East had overshadowed these economic concerns, the latest developments have shifted the focus back to underlying economic issues.
Over the weekend, data from China’s National Bureau of Statistics revealed that the country’s industrial profits plummeted by 27.1% year-on-year in September, marking the steepest decline since the pandemic. Additionally, a report from the International Energy Agency (IEA) indicated that global oil demand is projected to grow at half the rate in 2024 and 2025 compared to 2022 and 2023, primarily due to a decline in Chinese demand. The report highlighted, “China is underpinning the slowdown in growth, accounting for around 20% of global gains both this year and next, compared to nearly 70% in 2023.”
OPEC+ Increases Production Plans
Amid these challenges, OPEC and its allies convened on October 2 and agreed to continue with their plan to increase production starting in December. The group aims to boost output by 180,000 barrels per day while emphasizing the need for certain members to implement further cuts to address overproduction issues.
OPEC+ has been reducing production by a total of 5.9 million barrels per day, representing about 5.7% of global demand. Earlier this month, the group also revised down its oil demand forecast for 2024 and 2025, projecting an increase of 1.93 million barrels per day in 2024, down from an earlier estimate of 2.03 million barrels per day, citing China’s shift towards greener energy as a contributing factor.
As the market reacts to these developments, the interplay between geopolitical events and economic indicators continues to shape the future of crude oil pricing.
