Oil prices took a significant hit on Tuesday, with concerns over a demand slowdown and reports of Israel holding back on attacking Iranian oil facilities. At 08:10 ET (12:10 GMT), Brent crude fell 3.9% to $74.44 a barrel, while WTI crude fell 4.2% to $70.75 a barrel.
These losses come after a 2% drop in crude prices on Monday, leading to a total decline of about $5 a barrel so far this week.
Demand Fears and OPEC Cuts
Fears of slowing oil demand have been weighing on prices, particularly after China, the top importer of oil, showed signs of economic strain. China’s Ministry of Finance announced fiscal measures to support the economy over the weekend, but the lack of clarity and support for private consumption left traders unimpressed. Additionally, data revealed that China’s oil imports have been declining for the fifth consecutive month, indicating weakening economic conditions in the country.
Adding to these concerns, OPEC cut its 2024 and 2025 global oil demand forecasts for the third month in a row. The cartel now expects a growth of 1.93 million barrels per day in 2024, down from the previous estimate of 2.03 million bpd, with China being a key factor in this downgrade.
Israel’s Stance on Iran’s Oil Facilities
Reports that Israel may refrain from attacking Iran’s oil and nuclear facilities have also contributed to the drop in oil prices. The risk premium associated with a potential Israeli strike has lessened, easing tensions in the region. Previously, fears of an all-out war in the Middle East, especially after Iran’s missile strike against Israel in October, had been boosting oil prices.
Citi’s Bullish Outlook on Oil Prices
Despite the recent developments, Citigroup has raised its bull case for oil prices, citing historical risk events and the potential for supply disruptions in the Middle East. The bank maintains a baseline forecast of $74/bbl for the fourth quarter of 2024 and $65/bbl for the first quarter of 2025, with a 60% probability.
However, Citigroup has increased its bull case scenario for oil prices to $120/bbl for the same periods, with a 20% probability, highlighting the market’s susceptibility to supply losses. The bank draws parallels to previous supply disruptions, such as the Russia-Ukraine conflict in February 2022, which saw Brent oil averaging $116/bbl in the second quarter of that year.
Ultimately, these developments in the oil market have far-reaching implications for investors and consumers alike. Understanding the factors driving oil price movements can help individuals make informed decisions about their finances and investments. Whether it’s monitoring demand trends, geopolitical tensions, or supply disruptions, staying informed about the oil market can help mitigate risks and capitalize on opportunities in an ever-changing global economy.