Brent and U.S. crude oil futures fell on Tuesday as traders grew less nervous about the potential for a wider war in the Middle East, with Iran yet to act on threats to retaliate on Israel for assassination of a Hamas official in Tehran.
Benchmark Brent crude futures settled down $1.61, or 1.96 per cent at $80.69 a barrel. U.S. West Texas Intermediate crude finished down $1.71, or 2.14 per cent, at $78.35 a 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.”
The International Energy Agency kept its 2024 global oil demand growth forecast unchanged but trimmed its 2025 estimate, citing the impact of lacklustre Chinese consumption on economic growth.
Brent on Monday gained more than 3 per cent, closing at $82.30 a barrel after hitting the lowest closing price in seven months, $76.30, a week earlier.
Also on Monday, the Organization of the Petroleum Exporting Countries cut expected demand in 2024 even though the group and its allies, known as OPEC+, aim to raise output from October.
Escalation in the Middle East could endanger crude supply from a leading oil-producing regions, but wider war seemed less likely as Iran suggested renewed ceasefire talks with Hamas could prevent retaliation.
“We’re seeing evaporation of the geopolitical risk premium,” said Jim Ritterbusch, president of Ritterbusch Associates.
The U.S. has prepared for what could be significant attacks by Iran or its proxies in the region as soon as this week, White House national security spokesperson John Kirby said on Monday.
Markets also await Wednesday’s U.S. consumer price index report that will give a crucial read on inflation.