Richard Parks Crude oil prices fell sharply, dropping over 5% on Monday, after Israel conducted a limited retaliatory attack on Iran while sparing its oil and nuclear facilities. This move came in the wake of Iran’s ballistic missile attack on October 1, which had initially raised fears of a broader conflict.
Prices recovered slightly during the Asian trading session, with Brent crude for January delivery falling 4.06% to $72.56 per barrel, and West Texas Intermediate (WTI) for December declining 4.42% to $68.63 per barrel. Both benchmarks hit their lowest levels since October 1. Iran’s state media reported that oil production continued unaffected, alleviating fears of a supply disruption.
Michael Brown, Senior Research Strategist at Pepertone in London, commented, “This could resemble the situation in April, where both sides maintained some face and tensions might ease, at least temporarily. A reduction in the risk premium for crude seems likely, particularly given the bleak demand outlook.”
Economic concerns, especially related to China’s economic slowdown, have started to dominate the oil market narrative. Recent data from China’s National Bureau of Statistics showed a 27.1% year-on-year drop in industrial profits for September, marking the largest decline since the pandemic. The International Energy Agency (IEA) has also forecasted that global oil demand growth will slow significantly, predicting an increase of only 1.93 million barrels per day in 2024, down from 2.03 million.
OPEC and its allies recently convened and decided to proceed with plans to increase production by 180,000 barrels per day starting in December, despite noting the need for some member nations to implement further cuts to manage overproduction. OPEC+ has been curbing production by a total of 5.9 million barrels per day, or about 5.7% of global demand.
As geopolitical tensions subside, economic factors are increasingly steering the direction of crude oil prices, with China’s energy transition toward greener alternatives also contributing to the revised demand outlook.