War-Weary Oil Traders Ignore Middle East, Focus On Supply Glut

OPEC has downgraded demand for 2024 - but minimally: File Image/Pixabay

Schizophrenic crude traders on Tuesday did an abrupt about-face by letting their Middle East concerns take a back seat to worries about potential crude surpluses, even though analytical concern of late has been on the prospect of tight supplies globally.

As a result, oil broke a five day streak of gains: as of 1413 GMT, Brent was down $1.16, or 1.4 percent, at $81.16 per barrel, while West Texas Intermediate was down $1.11, or 1.4 percent, at $78.95 per barrel.

Traders' motivation rested largely on the Organization of the Petroleum Exporting Countries (OPEC) on Monday cutting its demand outlook in 2024 even though it aimed raise output from October.

Citing lagging demand in China, the cartel said world oil demand will rise by 2.11 million barrels per day (bpd) in 2024, down from growth of 2.25 million bpd expected last month.

Meanwhile, despite intense media attention, some analysts were sanguine about the impact of the growing hostilities between Israel, Iran, and other entities: Phil Flynn, senior market analyst at Price Futures Group Inc., said, "The markets had priced in an imminent attack by Iran against Israel within 24 to 48 hours, [but] that hasn't happened; the market is taking that risk premium out of the price for crude."

For her part, Amrita Sen, director of research at consultant Energy Aspects Ltd., said in a Bloomberg television interview, "I actually don't think the increase in Middle Eastern tensions, even if that were to transpire into attacks, will lead to prices significantly higher; unless and until there's an actual supply outage, we aren't going to see prices move up materially."

Bloomberg followed this by pointing out that "Timespreads are signalling underlying strength in markets, with the gap between WTI's two nearest contracts widening further in recent sessions; the measure was $1.60 a barrel in the bullish backwardation pattern, compared with 74 cents at the start of last week."