Oil Prices Fall As Reality Of Weak Global Demand Overtakes Risk Of Wider War In Middle East

Global oil prices are plummeting after Israel launched a retaliatory strike over the weekend that targeted Iranian military locations rather than its energy infrastructure, as had been anticipated.

Crude oil prices rose globally on October 2 after Iran launched roughly 200 missiles into Israel as part of a series of fast-increasing attacks between Israel, Iran, and its Arab allies that threatened to bring the Middle East closer to a regional war.

Iran is the world’s seventh-largest oil producer, but a bigger crisis in the Middle East may have an impact on the region’s largest energy producers.

Oil Prices Fall As Reality Of Weak Global Demand Overtakes Risk Of Wider War In Middle East

With many believing that the threat is receding in the short term, the price of benchmark U.S. crude and Brent crude, the worldwide benchmark, fell 6% on Monday. U.S. crude oil plunged well below $70 per barrel.

The Israeli military stated that its aircraft targeted Iranian facilities used to manufacture missiles fired at Israel, as well as surface-to-air missile installations.

Here’s a look at the current status and prospects for oil and gas prices:

The price of U.S. benchmark petroleum fell 6% Monday after Israel’s weekend retaliation strike on Iran targeted military targets rather than oilfields in the world’s seventh largest producer of crude.

This brings the price of a barrel of U.S. crude well below $70 after it rose above $77 earlier this month. Oil and gasoline prices have fallen dramatically since their yearly highs in April. According to energy specialists, more than half of the pumps in the United States sell a gallon of petrol for less than $3.

The focus has shifted back to the fundamentals of global energy markets, which have seen plentiful supply and falling demand this year. Slowing economic growth in China, the world’s largest energy consumer is a major cause.

Beijing announced that China’s economy grew at a 4.6% annual rate in the July-September quarter, down from 4.7% the previous quarter and falling short of the official aim of “about 5%” growth in 2024.

The Middle East war continues to roil energy markets, albeit not as dramatically.
Prices spiked momentarily this month after Iran launched missiles into Israel, but many experts believe Israel’s response over the weekend was moderate, potentially ending a cycle of retaliatory strikes from both sides, at least for now.

The OPEC+ coalition, which includes members of the producer’s cartel as well as ally countries such as Russia, wields less control over world pricing than in the 1970s when an oil embargo following the start of the Yom Kippur War in 1973 doubled crude oil prices.

Since then, the global oil supply has shifted dramatically, with the United States emerging as the world’s top producer. Months of conflict between Israel and two Iranian proxies, Hamas and Hezbollah, did little to raise oil prices for OPEC and its 12 member countries. Only the prospect of a direct conflict between Israel and Iran shifted the needle.

It is the fundamentals.
The long-term expectation is that oil prices will fall rather than rise. This is due to a shift in the supply-demand balance, which normally causes oil prices to fall.

According to the International Energy Agency’s most recent energy market assessment, oil demand in the first half of this year increased by the least amount since 2020. Meanwhile, supplies have continued to rise, and the OPEC+ alliance has announced intentions to release more oil into the market beginning in December.

What’s happening with energy prices this year?
Oil futures soared sharply to start the year, reaching $85 per barrel in April, but it’s been mostly downhill since then, and gas prices have followed suit.

Because oil costs half of a gallon of gasoline in the United States, gas prices are loosely correlated. Between Friday and Monday, when Israel conducted a measured counterstrike against Iran, the price of a barrel of oil fell $4.

OPEC has failed to build a floor for oil prices this year.

Oil Prices Fall As Reality Of Weak Global Demand Overtakes Risk Of Wider War In Middle East

Saudi Arabia and other oil-producing countries extended output cutbacks until June next year, seeking to preserve low oil prices that have yet to recover despite Middle Eastern turbulence and this year’s summer travel season.

At the same time, the United States is pumping an unprecedented amount of petroleum. The United States Energy Information Administration predicts that the average daily crude oil output in the United States will be 13.2 million barrels annually, with production only expected to increase in 2025.

What’s next for oil and gas prices?
Several energy experts believe that oil prices have peaked this year and will continue to fall, implying that motorists will benefit from additional discounts.

“Limited nature of Israeli strikes against Iran should diminish fears of wider war and shave some of the geopolitical premium on crude oil,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service, in a social media post this weekend. “Today’s U.S. retail gas avg is $3.13/gal with 55% of sites priced at less than $3/gal.”

SOURCE | AP