Global oil prices dip as Middle East supply disruption concerns ease

WEB DESK: Global oil prices dropped more than $1 a barrel on Tuesday, as traders took profits after Monday’s surge, which had pushed prices to their highest level in over a month.

The earlier rally was fuelled by concerns that tensions in the Middle East could escalate into a wider conflict, potentially disrupting the region’s oil supply.

Brent crude futures slipped by $1.31, or 1.6 per cent, to $79.62 a barrel by 0600 GMT. Similarly, US West Texas Intermediate (WTI) futures fell $1.29, or 1.7 per cent, to $75.85 a barrel. Both benchmarks had risen by over 3 per cent on Monday, marking their highest point since late August.

This followed last week’s impressive 8 per cent jump, the largest weekly increase in over a year, as fears mounted over possible supply disruptions due to the ongoing hostilities.

The conflict intensified as Hezbollah, backed by Iran, launched rockets at Haifa, Israel’s third-largest city. In response, Israel appeared ready to expand its military operations into Lebanon, following the Hamas attack a year ago that triggered the current war in Gaza.

IG market strategist Yeap Jun Rong noted that while tensions in the Middle East continue to create uncertainty, some traders have begun adjusting their positions, anticipating that any disruption to energy supplies might be less severe than previously feared.

“More clarity is awaited on how Israel will respond to Iran,” he added, indicating that geopolitical risks would likely keep prices supported.

The recent price rally started when Iran launched a missile attack on Israel on 1 October. Israel has since vowed retaliation, with its options potentially including strikes on Iran’s oil infrastructure. However, some analysts believe that such an attack is unlikely. If Israel targets non-oil-related assets, oil prices could see further declines.

Even if Iranian oil facilities were hit, there is a buffer of around 7 million barrels per day in spare production capacity from OPEC, which could help offset any shortfall, according to analysts from ANZ Bank.

Meanwhile, the overall demand outlook for oil remains weak. Phillip Nova analyst Priyanka Sachdeva noted that the market is still awaiting US inflation data due on Thursday, which will offer more insights into the health of the world’s largest economy.

Additionally, concerns linger over China’s slow economic growth, although the country’s National Development and Reform Commission expressed confidence in meeting its full-year economic goals.

In the US, Hurricane Milton has strengthened to a Category 5 storm, forcing at least one oil and gas platform in the Gulf of Mexico to shut down. This could add further volatility to the market in the coming days.

Traders are also keeping an eye on upcoming US crude oil inventory reports. A preliminary poll by Reuters suggests a 1.9 million barrel increase in stockpiles for the week ending October 4.

The American Petroleum Institute is set to release its report on Tuesday evening, with the Energy Information Administration’s official figures due on Wednesday.

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