Oil snaps five-day winning streak, drops over $1 after MidEast attack concerns fade away; Brent at $81/bbl

International crude oil prices snapped their five-day winning streak over rate cut hopes and declined more than $1 per barrel on Tuesday, August 13, as investors saw a reduced risk of a wider war in the Middle East. This comes after the International Energy Agency (IEA) and the Organisation of Petroleum Exporting Countries (OPEC) released their global oil demand forecasts. 

Benchmark Brent crude futures were last down $1.16, or 1.4 per cent at $81.16 a barrel while US West Texas Intermediate crude was down $1.11, or 1.4 per cent, at $78.95 a barrel. Brent on Monday gained more than three per cent, closing at $82.30 a barrel after hitting the lowest closing price in seven months, $76.30, a week earlier.

Also Read: OPEC reduces oil demand forecast for 2024 as China’s intake weakens

What's weighing on crude oil?

-Analysts said that the markets had priced in an imminent attack by Iran against Israel within 24 to 48 hours, which did not happen. So, now the market is taking that risk premium out of the price for crude. An escalation of conflict in the Middle East could endanger crude supply from one of the world's main oil-producing regions.

-The OPEC cartel slashed its expected demand in 2024 even as the group and its allies, known as OPEC+, aim to raise output from October. The IEA kept its 2024 global oil demand growth forecast unchanged but trimmed its 2025 estimate, citing the impact of lacklustre Chinese consumption on economic growth.

White House national security spokesperson John Kirby said on Monday that the US has prepared for what could be significant attacks by Iran or its proxies in the region as soon as this week. Markets are also awaiting Wednesday's US consumer price index report, which will provide a crucial read on inflation.

Also Read: Oil surplus looms if OPEC hikes supplies, IEA data show
 

Where are prices headed?

‘’The escalating tensions in the Middle East have overshadowed concerns about Chinese demand. Better-than-expected US and German economic data released last week supported crude oil prices. However, worries about Chinese demand and fears of a US recession could potentially limit further gains. We anticipate that crude oil prices will remain volatile. Crude oil has support at $77.30-76.60 and resistance at $78.70-79.20. In INR terms, crude oil has support at ₹6,610-6,550, with resistance at ₹ 6,755-6,810,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Analysts said that crude oil prices held their gains despite OPEC's reduction in demand growth forecast for 2024 and 2025. OPEC now anticipates that world oil demand will increase by 2.11 million bpd in 2024, down from the previous estimate of 2.25 million bpd. It projects a growth of 1.78 million bpd for 2025, slightly lower than last month's expectation of 1.85 million bpd. 

‘’Today, oil prices edged lower as markets shifted their focus to concerns about Chinese demand. Also, oil market report from the International Energy Agency due today may keep traders wary,'' said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.