The oil prices continued to fall on Tuesday. They nearly erased all recent gains due to the rising geopolitical tensions.
Prices fell 4% on the second day of trading, following a 2% drop on Monday. Weakening global demand as well as easing Middle East tensions were weighing heavily on sentiment.
Israel could avoid striking Iran’s oil infrastructure according to reports, which would reduce the risk premium for oil prices.
Tehran launched ballistic missile attacks on Israel on October 1 in response to the death of one of Hezbollah’s leaders, a militant group backed by Iran.
In the weeks that followed, oil prices rose by more than 10% as Israel prepared to respond to Iran’s attacks.
Any attack on Iran’s oil facilities would have severely affected the supply of oil in the region. Oil prices rose sharply in the following sessions.
West Texas Intermediate crude was trading at $70.72 a barrel as of the time this article was written, a 4.2% decrease from its previous close. Brent crude at the Intercontinental Exchange dropped 4.0% to $74.33 a barrel.
Demand at the forefront
After reports suggested that Israel might not target Iranian oil installations, the focus on the oil market has returned to the fundamentals of demand.
For the third month in a row, the Organization of the Petroleum Exporting Countries (OPEC) has cut its projections for the growth of global oil demand between 2024 and 2025.
OPEC cited low demand in certain regions around the world as a reason for reducing its estimates.
China, which is the largest crude oil importer, has struggled to restore its economy to levels before the pandemic. The oil price has been affected by this over the past few months.
Arslan Ali is an author at Fxempire.com. He said:
OPEC lowered their global oil demand growth projection for 2024 citing a weaker Chinese demand. However, oil prices are still supported by geopolitical risk.
The easing of geopolitical risks may provide temporary relief to oil and gas prices. However, the demand outlook for both commodities remains a major driver.
OPEC has slightly reduced its forecast of oil demand growth, but the successive reductions in the last three month have caught the attention on the market.
The International Energy Agency will release its monthly oil report on Tuesday, which traders will use to further assess the dynamics of demand and supply.
China’s stimulus package fails in its attempt to lift mood
The Chinese Finance Minister announced on Saturday that China will increase its debt by a significant amount, but did not provide any specifics about the quantum.
The market was in a bearish mood as traders were expecting a large stimulus package to boost the economy and the demand for commodities.
According to a Reuters article, China’s Customs data revealed that oil imports in September were down from a similar period a year ago, as plants cut back on purchases due to weak domestic fuel demand, and shrinking margins for exports.
Tina Teng, an independent market analyst who works for Reuters, said that while demand remains weak because of record-high US production and a soft Chinese market demand “oil has retreated” from the Middle East tension-driven surge. The market reaction was likely overdone.
Technical outlook for crude oil
According to Fxempire.com, WTI crude oil prices are supported by $69.91 and $68,91 per barrel. They face resistance at $73,45 per barrel. The 50-day moving average is above $73,93 per barrel.
Ali, Fxempire said:
The 200-day EMA, at $72.64, indicates a trend that favors a downward momentum over the long-term. However if prices rise above $72, a bullish corrective move could occur.
Prices could drop further if the support level below $70 per barrel is breached.
Brent’s immediate resistance was $76.85, and the support level at $74.34 per barrel. Both levels were breached today. Brent prices are supported by $73.56 per barrel and $72.69 for each additional barrel.
Fxempire.com says that the technical suggests that staying below $75.54 may maintain bearish pressure while breaking above this level could shift momentum upwards.
This post Oil Prices Drop Geopolitical Risk Premiums As Traders Turn Their Attention to Weak Demand appeared first on The ICD
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