Oil falls after record high last week
7 October 2024 10:13
On Monday, 7 October 2024, oil prices declined slightly after the biggest weekly rise in over a year. The drop was due to concerns about oversupply amid weak demand, which outweighed fears of a possible expansion of the conflict in the Middle East, reports "Komersant Ukrainian" reports with reference to Reuters.
As of 7 a.m. Kyiv time, Brent crude oil futures fell 31 cents (0.4%) to $77.74 per barrel. Futures for US West Texas Intermediate (WTI) crude oil fell 20 cents (0.27%) to $74.18 per barrel.
Last week, the price of Brent rose by more than 8%, the largest weekly increase since January 2023. WTI rose by 9.1% over the week, the biggest increase since March 2023. This sharp rise was driven by expectations that Israel might strike Iran’s oil infrastructure in response to the Iranian missile attack on Israel on 1 October. Even US President Joe Biden called on Israel not to strike Iranian oil depots.
However, as there is still no Israeli response, some investors may have sold futures to profit from the previous week’s gains.
Nevertheless, oil markets are likely to feel the threat of a rise in price due to fears of Israeli retaliation against Iran. After all, the potential for a large-scale escalation of the conflict in the Middle East outweighs the growing pressure from demand.
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On Sunday, Israel bombed Hezbollah targets in Lebanon and the Gaza Strip on the eve of the anniversary of the 7 October Hamas attacks on Israel that triggered the current war between Israel and the Iranian-backed militant groups. The Israeli Defence Minister also said that all options for retaliation against Iran remain open.
However, ANZ Research warned on Monday that despite last week’s rally in oil prices, the impact of the conflict on oil supplies will be relatively small. They consider a direct attack on Iran’s oil facilities to be the least likely option for Israel.
OPEC has millions of barrels of spare capacity as they have been cutting production in recent years to support prices amid weak global demand. A number of leading analysts believe that the group of producers has enough spare capacity to compensate for the complete loss of Iranian supplies if Israel disables the country’s facilities. But it will be difficult if Iran retaliates by striking at its neighbours’ facilities in the Persian Gulf.
At its last meeting on 2 October, OPEC left its oil production policy unchanged, including a plan to start increasing production in December. This increase, together with the uncertain pace of economic recovery in China, the largest oil importer, could easily protect the market from supply disruptions and continue to limit the growth of oil prices.
At the same time, there is another dimension to this situation – Saudi Arabia is ready to push oil prices down to $50 per barrel. If this happens, it will be especially painful for Russia.
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