Oil prices fell as the potential for increased supply outweighed concerns about tensions in the Middle East.
Oil prices dropped by over 2% on Tuesday as expectations of increased supply and weak global demand growth overshadowed concerns about escalating conflict in the Middle East and its potential impact on crude exports from the region.
Brent crude futures declined by $1.49 (2.08%) to $70.21 a barrel, while U.S. West Texas Intermediate (WTI) crude futures fell by $1.55 (2.27%) to $66.62 by 0840 GMT.
An OPEC+ panel, composed of top ministers from OPEC and its allies like Russia, is set to meet on October 2 to review market conditions. No policy changes are expected, although OPEC+ is scheduled to increase output by 180,000 barrels per day in December.
Market pressure also came from the possibility of Libyan oil production recovering, after Libya’s eastern-based parliament agreed to appoint a new central bank governor on Monday, which could help resolve the country’s oil output crisis.
John Evans, an analyst at PVM, noted that “the potential return of Libyan crude and the expected reduction of voluntary cuts by OPEC+ in December interfere with concerns about declining U.S. oil stocks and improving refinery margins.”
In China, a private sector survey revealed a sharp decline in manufacturing activity in September. Although recent stimulus measures could revive growth to around 5% in 2024, the long-term economic outlook remains uncertain.
In the Middle East, Israel launched ground raids against Hezbollah targets in Lebanon on Tuesday, following the killing of Hezbollah leader Hassan Nasrallah, which risks escalating tensions in the region and drawing in countries like the U.S. and Iran.
However, Panmure Gordon analyst Ashley Kelty observed that “while fears of Iran joining the conflict have supported prices, Iran’s current rhetoric suggests they are reluctant to escalate beyond their proxies in Yemen, Lebanon, and Palestine.”
In the U.S., crude oil and fuel stockpiles were projected to have fallen by around 2.1 million barrels in the week ending September 27, according to a preliminary Reuters poll. The American Petroleum Institute is expected to release its report later on Tuesday.
