Investing.com -- Oil prices fell sharply Tuesday, extending recent losses amid growing concerns over a demand slowdown, while a report suggesting that Israel will not attack Iranian oil facilities also weighed.
At 08:10 ET (12:10 GMT), Brent oil futures fell 3.9% to $74.44 a barrel, while West Texas Intermediate crude futures fell 4.2% to $70.75 a barrel.
Crude prices tumbled over 2% on Monday, and are down about $5 a barrel so far this week.
Demand fears grow on OPEC cut, China concerns
Fears of slowing oil demand were a major weight on prices, especially following somewhat underwhelming signals from top importer China.
China’s Ministry of Finance over the weekend outlined a slew of fiscal measures to support the economy. But traders were underwhelmed by a lack of clarity on the timing and scale of the measures, as well as a lack of clear measures aimed at supporting private consumption.
Data on Monday also showed China’s oil imports fell for a fifth consecutive month, signaling that weak economic conditions were chipping away at China’s appetite for crude.
Fears of slowing demand were exacerbated by the OPEC cutting its 2024 and 2025 global oil demand forecasts for a third consecutive month.
The cartel expects 2024 oil demand growth of 1.93 million barrels per day, down from prior forecasts of growth of 2.03 million bpd. The cartel cited China as a key motivator of the downgrade.
Israel to spare Iran's oil facilities?
Oil prices were also dented by a lessening of the risk premium after a report on Monday said that Israel will not attack Iran’s oil and nuclear facilities.
Such a potential strike was expected to mark a major escalation in the conflict, and had seen traders bidding up oil prices on expectations of the attack.
Fears of all-out war in the Middle East were a major boost to oil prices in recent weeks, especially after Iran launched a missile strike against Israel earlier in October. Focus is now squarely on Israeli retaliation.
Citi lifts oil price bull case
Despite the talk of a reasonably restrained reaction from Israel, Citigroup has lifted its bull case for oil prices after assessing historical risk events, given the potential for supply disruption in the Middle East.
The US bank keeps its baseline forecast for $74/bbl Brent in the fourth quarter of this year and $65/bbl during the first quarter of 2025, with an indicative probability of 60%, owing to weak underlying oil market fundamentals.
But it lifted its bull case scenario for oil prices for the 4Q’24 and 1Q’25 to $120/bbl from $80/bbl, lifting its indicative probability to 20%, up from 10%, given the heightened potential of the market to fear or realize supply losses during the months ahead.
A recent analog to the potential escalation in the Middle East from here is the Russia-Ukraine conflict in Feb’22, during the beginning of which Brent oil rallied to average $116/bbl in 2Q ’22, the bank said.
“Our new bull case scenario is based on supply fears and disruptions similar in magnitude and duration to that which occurred during 2022,” analysts at Citi said, in a note dated Oct. 14.
(Ambar Warrick contributed to this article.)