Bearish Triple Whammy Hammers Oil Futures With Over 5% Declines

Oil futures suffered further declines of over 5% on Tuesday following a series of bearish market developments.

At 12:01pm EDT, the Brent front-month futures contract was down 5.15% or $3.98 to $73.32 per barrel, while the West Texas Intermediate was trading at $69.42, down 5.37% or $3.93 as three recent developments weighed heavily on trading sentiment.

Firstly on Saturday, Chinese Finance Minister Lan Fo'an held a press conference reaffirming Beijing's commitment to economic stimulus measures and achieving its 5% GDP growth target.

However, he stopped short of providing a clear number on how much the government would spend in bringing this about triggering oil price declines of over 2% in Asia and Europe on Monday.

Secondly later on Monday, the Organization of Petroleum Exporting Countries - considered to be the most bullish of oil demand forecasters - revised its forecast lower for the year.

In its scheduled monthly market assessment, OPEC said global oil demand will rise by 1.93 million barrels per day in 2024, down from a growth figure of 2.03 million bpd it predicted last month.

This marked the second downward revision for the producers' group this year. Until August, OPEC had kept its demand growth forecasts unchanged since July 2023. Unsurprisingly, China accounted for the bulk of OPEC's 2024 downgrade with the country's demand growth forecast lowered from 650,000 bpd to 580,000 bpd.

"Diesel consumption [in China] continued to be subdued [in August] by slowing economic activity, mostly a slowdown in building and housing construction, and the substitution of liquefied natural gas for petroleum diesel fuel in heavy-duty trucks," OPEC said.

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Thirdly late on Monday in the U.S., and just as oil trading was getting underway in Asia on Tuesday, a report in The Washington Post claimed Israel would stop short of attacking Iran's oil facilities in retaliation for an attack by Tehran on October 1.

Faced with lower global demand in general, and China's in particular, crude oil futures slumped in September to their lowest levels since December 2021, with Brent falling as low as $70. But Iran's attack on Israel raised the market risk premium considerably and drove Brent futures back towards $80 per barrel.

In the attack's aftermath, Iran said it had attacked Israel in response to its "aggressive acts," including the killing of Hezbollah leader Hassan Nasrallah in Lebanon. In response, Israeli Prime Minister Benjamin Netanyahu said Iran had "made a big mistake and will pay for it".

Many took it as a coded warning that Israel may attack Iran's oil facilities. According to industry data aggregator and research firm Kpler, Iran exported 1.194 million barrels per day of crude oil and gas condensate in spring 2023, a figure that rose to a five-year high of 1.65 million bpd in the first five months of 2024.

However, The Washington Post report, citing officials familiar with the matter, reported late Monday that Netanyahu told U.S. President Joe Biden's administration on October 8 that he is willing to strike Iranian military rather than "oil or nuclear" facilities.

Israel's retaliation will be designed to avoid "political interference in the U.S. Presidential election," the report claimed further, whilst adding that Israel was keeping the timing of its retaliation open-ended. But one official said it would come before the November 5 election, describing the imminent action as "one in a series of responses."

Nevertheless, oil traders took it as a de-risking signal with many turning their focus firmly back to market fundamentals suggestive of uncertain demand growth in the fourth quarter of 2024 and elevated levels of global non-OPEC crude oil production.