Brent and U.S. crude oil futures declined on Tuesday as the market assessed a reduced likelihood of an expanded conflict in the Middle East, with Iran yet to follow through on its threats to retaliate against Israel for the assassination of a Hamas official in Tehran.
As of 12:48 p.m. Central Time, Brent crude futures had dropped $1.40, or 1.71%, to $80.90 per barrel, while U.S. West Texas Intermediate crude was down $1.46, or 1.82%, at $78.60 per barrel.
“The markets had priced in an imminent attack by Iran against Israel within 24 to 48 hours,” said Phil Flynn, senior analyst at Price Futures Group. “That hasn’t happened. The market is taking that risk premium out of the price for crude.”
On Monday, Brent crude gained over 3%, closing at $82.30 per barrel after hitting a seven-month low of $76.30 just a week prior.
The Organization of the Petroleum Exporting Countries (OPEC) revised down its demand forecast for 2024, despite plans to increase output starting in October.
On Tuesday, the International Energy Agency maintained its global oil demand growth forecast for 2024 but reduced its estimate for 2025, attributing the adjustment to weak Chinese consumption affecting economic growth.
While an escalation in the Middle East could threaten oil supplies from this key production region, the likelihood of a broader conflict seemed reduced as Iran hinted that renewed ceasefire talks with Hamas might avert the need for retaliation.
“We’re seeing evaporation of the geopolitical risk premium,” said Jim Ritterbusch, president of Ritterbusch Associates.
The U.S. is bracing for potentially significant attacks by Iran or its proxies in the region as early as this week, according to White House national security spokesperson John Kirby on Monday.
Meanwhile, markets are also anticipating Wednesday’s U.S. consumer price index report, which will provide important insights into inflation trends.
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