Oil prices tumble as demand concerns take centre stage

Oil prices fell early on Tuesday morning as fears faded of Israel striking Iranian oil facilities and traders refocused on growing demand concerns. Oil prices tumbled more than 4 per cent to a near two-week low on Tuesday due to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of a supply disruption. Brent crude futures were down $3.54, or 4.57%, to $73.92 a barrel. West Texas Intermediate futures lost $3.55, or 4.81%, hitting $70.28 a barrel. Both benchmarks had earlier fallen by $4, reaching their lowest since the beginning of October, after settling about 2% lower on Monday. “We’re seeing an unwinding of the war premium we built up last week,” said Phil Flynn, senior analyst at Price Futures Group. “What we’re seeing, it’s not really about supply, it’s about the risk to supply and demand.”

Brent and WTI are down about $5 so far this week, nearly wiping out cumulative gains made after investors became concerned Israel could strike Iran’s oil facilities in retaliation for Tehran’s Oct. 1 missile attack. Israeli Prime Minister Benjamin Netanyahu told the United States that Israel was willing to strike Iranian military targets and not nuclear or oil ones, the Washington Post reported late on Monday. Both the Organisation of the Petroleum Exporting Countries and the International Energy Agency this week cut their forecast  for global oil demand growth in 2024, with China accounting for the bulk of the downgrades.

OPEC has projected a much stronger expansion of global demand for the year than the IEA. But its “run of lower adjustments is something of an admission of wishful thinking,” said John Evans at oil broker PVM. Traders were watching tightening spreads, brokerage firm StoneX said in a morning note. “The December-December spreads also tightened, reflecting hedge funds’ reduction of net long positions in crude oil,” said StoneX. “As geopolitical risks seem to ease, the oil market has reversed its recent aggressive rally, now sitting at its lowest level in two weeks.”