Brent crude prices hovered near a seven-month low on Monday despite geopolitical tensions in West Asia, as global market sentiments declined due to renewed fears of a slowing US economy.
Brent crude prices rose earlier this year due to OPEC+ supply cuts and geopolitical conflicts. However, oil prices have dropped for four weeks as economic data from the US and China indicated weakening demand.
Brent crude fell as much as 0.83% to $72.91 per barrel during the day and was trading at $73.76 at 9:41 a.m.
Reasons For Lower Prices
Several factors are influencing the current situation. The market has discounted the impact of geopolitical risks and inflation on consumers, said Peter McGuire, chief executive officer of XM Australia.
Oil market participants are monitoring rising tensions in West Asia but are not adding a supply-risk premium to crude prices, said Vandana Hari, CEO of Vanda Insights. Financial market sentiment declined due to fresh fears about the US economy, which started last week, Hari explained.
McGuire noted that the US dollar strengthened over the summer, while its value against the yen decreased significantly. A stronger US dollar typically lowers Brent crude oil prices, as oil becomes more expensive for holders of other currencies, reducing demand and leading to lower prices.
Hari mentioned that Israel and Iran limited their military actions against each other a few months ago. This has strengthened the market's expectation that any new conflicts will be managed similarly, preventing major disruptions to oil supplies.
McGuire pointed out that declining base metal prices, such as copper, silver, lead, and aluminium, have also pulled crude oil prices down.
Future Price Trends
McGuire suggested that the prospects of war in West Asia are increasing and may escalate in the coming weeks, potentially drawing support from China and Russia. Only then will crude prices rise significantly again.
The growing demand concerns and geopolitical risks continue to affect the oil market. An escalation in West Asia may cause short-term volatility, but sustained price strength requires an actual disruption to crude supply, Warren Patterson, head of commodities strategy at ING Groep NV said.
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