By Oil prices extended their losses on Tuesday, nearly erasing all the recent gains accrued due to rising geopolitical tensions.
Prices slipped 4% on Tuesday, which followed a 2% decline on Monday as weakening global demand and easing Middle East tensions weighed heavily on sentiments.
Reports claimed that Israel may avoid hitting Iran’s oil infrastructure, which diffused some of the risk premium on oil prices.
On October 1, Tehran had carried out ballistic missile strikes on Israel in retaliation to the killing of one of the leaders of Iran-backed Hezbollah militant outfit.
Over the subsequent weeks, oil prices had surged more than 10% in anticipation of Israel’s response to Iran’s attack.
Iran produces about 3.2 million barrels per day of oil, and any attack on its oil facilities could have crippled supply in the region. This prompted oil prices to rise sharply over the next few sessions.
At the time of writing, the price of West Texas Intermediate crude oil was at $70.72 per barrel, down 4.2% from the previous close. Brent crude on Intercontinental Exchange fell 4.0% to $74.33 per barrel.
Demand concerns at the forefront
Amid reports that Israel may not target Iranian oil facilities, the focus has shifted back to demand fundamentals in the oil market.
The Organization of the Petroleum Exporting Countries on Monday cut its forecast for growth in global oil demand for both 2024 and 2025 for the third consecutive month.
OPEC cited poor demand from certain regions across the world for downsizing its estimates.
China, the biggest importer of crude oil, has been struggling to revive its economy to pre-pandemic levels. This has weighed on oil prices over the last few months.
Arslan Ali, author at Fxempire.com said in a report”
While OPEC lowered its global oil demand growth forecast for 2024, citing weaker Chinese demand, oil prices remain supported by ongoing geopolitical risks.
“The easing of immediate geopolitical threats might provide temporary relief for oil and natural gas prices, but demand outlook remains a key driver for both commodities.”
Though OPEC cut its demand forecast for growth in oil consumption slightly, the consecutive reductions over the last three months have grabbed the attention of the market.
Traders will be waiting for the release of the International Energy Agency’s monthly oil report later on Tuesday to assess the demand-supply dynamics further.
China’s stimulus package fails to uplift mood
On Saturday, China’s finance minister announced that the country will significantly increase debt, but failed to give any details about the quantum.
This was bearish for the market as traders expected a substantial stimulus package to support the economy and prop up demand for commodities.
China’s customs data showed that September oil imports fell from a year earlier, as plants curbed purchases because of weak domestic fuel demand and narrowing export margins, according to a Reuters report.
Independent market analyst Tina Teng told Reuters that while the demand outlook remains weak due to record high US production and soft Chinese demand, “oil retreated from the Middle East-tension-led surge as the market reaction may have been overdone.”
Crude oil’s technical outlook
WTI crude prices have immediate support at $69.91 and $68.91 per barrel, while resistance at $73.45 per barrel, with the 50-day exponential moving average above $73.93 a barrel, according to Fxempire.com.
Fxempire’s Ali said:
The 200-day EMA at $72.64 suggests a longer-term trend favoring downside momentum, but if prices push back above $72, we could see a bullish correction.
If the support below $70 per barrel is broken, prices could fall further.
For Brent prices, the immediate resistance stood at $76.85 per barrel, while support was at $74.34, which has been breached this morning. The additional support for Brent are $73.56 and $72.69 per barrel.
The technical suggest that staying below $75.54 could maintain bearish pressure, while breaking above it may shift momentum to the upside, according to Fxempire.com.
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