Crude Drops As Supply Fears Ease, But World Bank Warns Of Potential $157 Oil

Meanwhile, analysts debate Germany's influence on demand: File Image/Pixabay

Oil prices on Monday lost as much as had been gained the previous Friday, about 3 percent, as headline-influenced traders reverted to thinking that the Israel-Hamas war would not disrupt supply from the Middle East.

It is unclear why sentiment shifted, especially given that Israel's incursion into Gaza – feared by critics as a potential trigger for other Middle Eastern countries to become embroiled in the war – is underway.

Brent settled down $3.03 at $87.45 per barrel, while West Texas Intermediate settled down $3.23 at $82.31 per barrel.

Phil Flynn, senior market analyst at Price Futures Group Inc., theorized that, "It's a situation where over the weekend the war seemed to intensify, but there seems to be no disruption to supply."

John Evans, analyst at PVM, agreed, saying, "There is a propensity for market users in all their guises to have at least some oil length going into the weekends, and when the fear of conflict spread shows no validation... that fear hedge is ordinarily unwound."

But the loose analytical consensus seemed to be one of caution, summarized by Indermit Gill, chief economist at the World Bank, who said in a statement, "Policymakers will need to be vigilant…..if the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades — not just from the war in Ukraine, but also from the Middle East."

The World Bank on Monday predicted oil prices to average $90 per barrel in the fourth quarter before dropping to an average of $81 per barrel over next year, due to slowing economic growth; it added that were the conflict to escalate, prices could skyrocket to as high as $157 per barrel.

For his part, Richard Bronze, co-founder and head of geopolitics at Energy Aspects, told CNN that Monday's trading was influenced not so much by Israel/Hamas but by "market concerns about the health of the global economy and the implications for oil demand."

His observation came on the heels of Europe's biggest economic driver, Germany, reporting that its gross domestic product shrank in the third quarter by 0.1 percent compared with the previous quarter, when it grew 0.1 percent.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said, "Germany's economy is once again teetering on the brink of a technical recession"; however, the contraction was contrasted by investment by companies into machinery and equipment making a positive contribution to the country's GDP, according to Germany's Federal Statistical Office.

Vistesen maintained that "Germany's economy is now firmly stuck in the mud" and "Risks are tilted to the downside for the start of 2024."