Oil futures: Crude slumps 5% on eroding geopolitical risk premium
Quantum Commodity Intelligence – Crude oil futures Tuesday were sharply lower amid reports that Israel will not target Iran's oil infrastructure, easing fears over the potential for regional supply disruptions.
Front-month Dec24 ICE Brent futures were trading at $73.80/b (1610 GMT), compared to the day's low of $73.34/b and Monday's settle of $77.46/b.
At the same time Nov24 NYMEX WTI was trading at $70.15/b versus Monday's settle of $73.83/b.
According to the Washington Post, Israeli Prime Minister Benjamin Netanyahu has told the US that Israel is willing to strike Iranian military targets and not nuclear or key oil installations.
In response, Netanyahu's office said in a statement on Tuesday that Israel would listen to the US but will decide its actions according to its national interests.
The Wall Street Journal and New York Times also later reported that Israel had given assurances that it would not target oil and nuclear installations.
The risk premium had already been in retreat, with Israel so far holding back from a retaliatory strike for the 1 October missile attack, following US-led efforts to talk Israel down from targeting oil facilities.
"The US has been actively urging Israel to temper its military responses to avoid a wider conflict," said Andrea Zanon, market analyst at Confidente. "Iran from its side, has refrained from threatening the closing of the Straight of Hormuz."
In the past, Tehran has threatened to close the vital transit chokepoint, but in the most recent escalation, it has not made similar threats.
Decline
Oil benchmarks had already declined 2% in the previous session after China's Finance Ministry briefing over the weekend disappointed, lacking specific details on economic stimulus and timelines.
OPEC also joined the gloomier outlook, cutting its demand forecast for a third consecutive month, although it remains significantly higher than other projections. The producer group lowered its 2024 oil demand growth estimates 106,000 bpd to 1.9 million bpd.
China accounted for the bulk of the downgrade, with OPEC trimming its 2024 forecast by 70,000 bpd to 580,000 bpd amid lacklustre industrial activity and an accelerating energy transition towards renewables.
Weak refining margins and uncertainty around downstream demand also meant China's crude oil imports remained disappointing last month, dropping about 4% from August.
Equivalent to around 11.1 million bpd, September's arrivals continued to run behind last year, with the drop coming as refiners struggling with weak cracks through the second half of the year.
