Brent oil prices fell below $80 even though the war in Palestine is still underway. A few weeks ago, a shocking attack in Israel by Hamas cast a shadow of uncertainty over the Middle East.
The price of a barrel of Brent oil shot beyond $95 overnight.
However, as the energy market began to process the outlook for oil demand worldwide, the resilience in oil prices was unable to continue.
Weak economic data from China and future estimates of lower US oil use threaten the oil price outlook.
Both WTI and Brent crude fell by about 18% from their recent October peak prices.
Brent crude finished the day at $80.01, going up by 0.59%, and is now at $79.87. U.S. WTI crude closed at $75.74, with a 0.54% gain, and is currently trading at $75.47.
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Shifting Focus to Waning Demand for Oil
Contrary to expectations, the energy market seems to have shifted its focus away from the ongoing Middle East conflict. Economic concerns about China and other significant consumers have led to a gloomy outlook on future petroleum demand.
This shift overshadows the potential risks of a broader war. Despite efforts by oil-producing nations like Saudi Arabia to boost prices by reducing oil output, they face challenges amid forecasts predicting a challenging 2024 for oil markets.
Also read: Oil Prices Jumped Over 4% on the Fear of Supply Disruptions
Traders Gauge Risks in Oil Prices
As the conflict continues, traders sense a clear divide between oil-rich and oil-limited regions in the Middle East.
Gaza and Israel are making minimal contributions to oil production. So, only if the conflict spreads to major oil fields in Saudi Arabia, Iraq, or Iran would the significant supply disruption depend.
Possible oil embargo talks for Israel are similar to history. However, doubts arise due to climate concerns and oil dependency. Any action can backfire on oil-producing nations amid a weaker outlook for oil prices.
Also read: Bank of England Keeps15-Year High Interest Rates
Considering Risks in the Middle East Conflict
Even though the market appears calm, there are still potential risks. A missile attack on a crucial Saudi facility four years ago temporarily halted half of the kingdom’s oil production. It is a terrible reminder for everyone.
Talking about an extreme scenario, there’s concern about Iran blocking the vital oil transportation route, the Strait of Hormuz. Yet, experts emphasize that it’s unlikely for Iran or OPEC to independently decide to cut oil sales. They point out the potential harm this could cause to both producers and consumers.
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Focused Efforts to Safeguard Regional Oil Flow
The Biden administration is actively working to prevent further conflict amid escalating tensions. They recognize the stakes for regional oil powers, including Iran, and are making efforts to maintain the flow of tanker traffic through the Persian Gulf.
Regional powers exercise caution, being aware that any halts could impact export earnings and risk the alienation of valued customers. Analysts are predicting a probable containment of the conflict.
They emphasize that the primary risks are rooted in miscalculation and misjudgment. These risks are highlighted rather than the possibility of a spillover into major oil-producing regions or key shipping lanes.
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