Global Tensions Weigh on Oil Prices as Market Retreats from Recent Highs
Oil prices plummeted by over $1 per barrel on Tuesday, as investors cashed in on the previous day’s gains, which saw the market soar to its highest level in over a month. The surge was fueled by fears of a potential region-wide conflict in the Middle East, which could disrupt oil supplies.
As of 0600 GMT, Brent crude futures had fallen by $1.31, or 1.6%, to $79.62 per barrel, while U.S. West Texas Intermediate futures dropped by $1.29, or 1.7%, to $75.85 a barrel. This marks a significant correction from Monday’s rally, which saw both contracts rise by over 3% to their highest levels since late August.
The recent escalation of violence in the Middle East, including rocket attacks by Iran-backed Hezbollah on Israel’s third-largest city, Haifa, and Israel’s potential expansion of its offensive into Lebanon, has raised concerns about the stability of the region’s oil supply. However, some analysts believe that any disruptions to energy supplies may be more measured than initially thought.
“The ongoing geopolitical tensions in the Middle East continue to impact the oil market, but investors are taking a more cautious approach, pricing in the risks of potential supply disruptions,” said Yeap Jun Rong, a market strategist at IG.
Despite the recent rally, oil prices may face downward pressure if Israel’s retaliation against Iran focuses on targets other than oil facilities. Additionally, the Organization of Petroleum Exporting Countries has a spare supply capacity of 7 million barrels per day, which could help mitigate the impact of any disruptions to Iranian oil output.
Looking ahead, the market will be closely watching developments in the Middle East, as well as key economic indicators, including U.S. inflation data due on Thursday. Meanwhile, China’s National Development and Reform Commission has expressed confidence in achieving its full-year economic targets, which could help support oil demand.
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