Investing.com — Oil prices edged lower on Wednesday, adding to last week’s heavy losses, as the prospect of a less severe escalation in the Middle East and weak demand weighed.
At 2:30 PM ET (18:30 GMT), the price was down 0.04% at $74.22 per barrel, while the stock was down 0.3% at $70.39 per barrel.
Fears in the Middle East are subsiding after Israel’s report
Prices fell more than 4% in the previous session as fears of a serious escalation of the Middle East conflict eased after a Washington Post report said Israeli Prime Minister Benjamin Netanyahu assured US officials that the country would not attack Iran’s oil and nuclear sites.
Markets were anticipating Israel’s retaliation after an early October missile attack by Iran, as hostilities between Israel and Iran-backed forces showed little sign of easing.
Fears of all-out war in the region were a big boost to oil prices, as traders priced in a larger risk premium on the prospect of supply disruptions in the Middle East.
Warnings from the IEA and OPEC worsen the oil outlook
Oil markets also struggled this week amid warnings of increased supply and lower demand from two major industry groups.
The International Energy Agency said on Tuesday it expects oil markets to see a supply glut by 2025, and that it stands ready to deal with any disruptions to supplies from the Middle East.
The agency also slightly revised down its demand growth forecast for 2024, citing weakness in top importer China.
The cut came just a day after the cut in forecast demand growth for 2024 and 2025, amid concerns about deteriorating demand in China.
China has announced a slew of stimulus measures in recent weeks. But investors were still disappointed by a lack of details about the timing and extent of the planned measures.
Weak economic data from the country also negatively affected sentiment.
OPEC faces a dilemma: Bernstein
According to Bernstein, global oil demand remains in the doldrums, creating a dilemma for OPEC given the looming crude supply glut next year.
“Heading into 2025, we remain concerned about the looming surplus of crude oil supply next year, which would reduce calls on OPEC by 0.9 million barrels per day,” Bernstein analysts said in an Oct. 16 note.
“OPEC’s dilemma is that they probably have to cut to support current prices. But with spare capacity already at high levels, this is far from what OPEC would want to do,” Bernstein analysts said in an Oct. 16 note.
More recently, OPEC members have discussed reversing the cuts, although this could be an attempt to maintain discipline among OPEC members, Bernstein said.
At this stage, an increase in OPEC production by the end of the year seems unlikely, but this is probably the biggest short-term concern for oil investors.
“While the fundamentals setup does not look positive for Brent, geopolitics remains the key upside risk that cannot be completely ruled out given the geopolitical risks,” Bernstein added.
(Peter Nurse, Ambar Warrick contributed to this article.)
