Oil News: Crude Prices Drop Sharply as Demand Weakens and Iran Supply Fears Ease

Crude Oil Prices Fall Sharply as Demand Weakens and Iran Supply Fears Ease

Light crude oil futures dropped significantly on Tuesday, falling below the key technical level of the 50-day moving average of $71.61, turning this price into new resistance. The market faces a test of the long-term Fibonacci support level at $69.79. If prices break below this, traders could see oil pushing towards the next support zone between $66.33 and $64.04.

At 09:23 GMT, Light Crude Oil Futures are trading $70.39, down $3.44 or -4.66%.

Oil Prices Fall on Demand Concerns and Eased Supply Fears

Crude oil futures have fallen over $3 to a near two-week low, driven by reduced demand outlook and easing supply disruption concerns. A media report stating that Israel may refrain from targeting Iranian oil facilities contributed to the slide, alleviating worries of a significant supply interruption. Brent and WTI benchmarks both dropped around 2% on Monday and have shed almost $5 this week, erasing recent gains from supply fears linked to the Israel-Iran conflict.

The Washington Post reported on Monday that Israeli Prime Minister Benjamin Netanyahu communicated with the U.S., indicating that Israel would target Iranian military sites, not its oil infrastructure. This news encouraged traders to remove the “war premium” from oil prices. However, market volatility remains, with geopolitics still providing support above the $70 per barrel level.

OPEC Cuts Demand Forecast as China’s Growth Slows

The Organization of the Petroleum Exporting Countries (OPEC) revised its 2024 global oil demand growth forecast downward in its latest report. OPEC now expects demand to grow by 1.93 million barrels per day (bpd), down from its previous estimate of 2.03 million bpd. China’s demand growth in particular has been reduced from 650,000 bpd to 580,000 bpd. A slowdown in the construction sector and a shift towards cleaner energy are behind this reduction, with diesel consumption dropping in heavy industry and transport sectors.

OPEC’s ongoing production cuts have helped support prices, but recent unrest in Libya and lower production from Iraq contributed to a September drop in OPEC+ output, down 557,000 bpd from August. The group’s production cuts, initially slated to end in October, have been extended until December, reflecting a challenging supply environment.

IEA Predicts Oil Surplus in 2024

The International Energy Agency (IEA) offered a more bearish outlook, forecasting a significant oil surplus in early 2024. The IEA expects global oil demand to grow by only 900,000 bpd next year, markedly lower than OPEC’s figures. Weaker-than-expected demand from China is the primary factor. The IEA also reassured markets that global oil supplies are secure for now, citing robust emergency stockpiles and high spare production capacity within OPEC+.

The IEA emphasized that supply disruptions from Iran or elsewhere could still alter the situation, but current conditions suggest a well-supplied market heading into 2024.

Market Forecast: Bearish Outlook

With technical indicators signaling further downside potential, and both OPEC and the IEA projecting weaker demand, the market outlook for crude oil prices is bearish. The combination of eased supply concerns and weakening global demand, particularly from China, suggests that oil prices could continue to decline, potentially testing the $66 to $64 support zone in the short term. Traders should watch for further downside momentum, especially if key support levels break.