Oil Prices Decline Amid Demand Concerns

Oil prices fell sharply on Tuesday, extending recent losses due to worries about demand slowdown and reports that Israel will not target Iranian oil facilities.

At 08:10 ET (12:10 GMT), Brent oil futures dropped 3.9% to $74.44 a barrel, while West Texas Intermediate crude fell 4.2% to $70.75 a barrel. This follows a 2% decline on Monday, resulting in a weekly drop of around $5 per barrel.

Demand Fears Grow on OPEC Cut, China Concerns

Concerns over slowing oil demand have emerged as key players, especially following ambiguous signals from top importer China. Over the weekend, China’s Ministry of Finance announced several fiscal measures to bolster the economy, but traders expressed disappointment over vague timelines and a lack of clarity regarding private consumption support.

Moreover, data released on Monday indicated that China’s oil imports have decreased for the fifth consecutive month, reflecting weakening economic conditions.

OPEC has also cut its global oil demand forecasts for 2024 and 2025 for the third month in a row, now anticipating a growth of 1.93 million barrels per day in 2024, down from the previous estimate of 2.03 million bpd, largely due to issues in China.

Israel to Spare Iran's Oil Facilities?

Oil prices took another hit as reports surfaced claiming Israel will not target Iran’s oil and nuclear facilities. Expectations of an attack had previously driven prices up.

Growing fears of conflict in the Middle East have recently boosted oil prices, particularly after Iran’s missile strike against Israel. The market is now closely monitoring the potential Israeli retaliation.

Citi Lifts Oil Price Bull Case

Despite a seemingly restrained response expected from Israel, Citigroup has revised its bullish outlook for oil prices following an analysis of historical risk events, particularly concerning supply disruption potentials in the Middle East.

Citi maintains a baseline forecast of $74 per barrel for Brent crude in Q4 of this year and $65 per barrel in Q1 of 2025, with a 60% probability due to weak market fundamentals.

The bank, however, raised its bull case for the prices in Q4 2024 and Q1 2025 to $120 per barrel from $80 per barrel, increasing the probability to 20% from 10%. This adjustment reflects the market’s heightened response to potential supply losses.

Citi cited similarities to the oil rally seen during the early stages of the Russia-Ukraine conflict in February 2022, when Brent averaged $116 per barrel in Q2 2022. Analysts noted that the new bull case scenario is based on potential supply disruptions akin to those experienced in 2022.

(Ambar Warrick contributed to this article.)