Oil tumbles on easing fears of wider Middle East war

HOUSTON – Brent and US crude oil futures fell on Tuesday as traders grew less nervous about the potential for a wider war in the Middle East, with Iran yet to act on threats to retaliate against Israel for the assassination of a Hamas official in Tehran.

Benchmark Brent crude futures settled down USD 1.61, or 1.96% at USD 80.69 a barrel. US West Texas Intermediate crude finished down USD 1.71, or 2.14%, at USD 78.35 a barrel.

“The markets had priced in an imminent attack by Iran against Israel within 24 to 48 hours,” said Phil Flynn, senior analyst at Price Futures Group. “That hasn’t happened. The market is taking that risk premium out of the price for crude.”

The International Energy Agency kept its 2024 global oil demand growth forecast unchanged but trimmed its 2025 estimate, citing the impact of lackluster Chinese consumption on economic growth.

Brent on Monday gained more than 3%, closing at USD 82.30 a barrel after hitting the lowest closing price in seven months, USD 76.30, a week earlier.

Also on Monday, the Organization of the Petroleum Exporting Countries cut expected demand in 2024 even though the group and its allies, known as OPEC+, aim to raise output from October.

Escalation in the Middle East could endanger crude supply from a leading oil-producing region, but wider war seemed less likely as Iran suggested renewed cease-fire talks with Hamas could prevent retaliation.

“We’re seeing evaporation of the geopolitical risk premium,” said Jim Ritterbusch, president of Ritterbusch Associates.

The US has prepared for what could be significant attacks by Iran or its proxies in the region as soon as this week, White House national security spokesperson John Kirby said on Monday.

Markets also await Wednesday’s US consumer price index report that will give a crucial read on inflation.

(Reporting by Erwin Seba in Houston; additional reporting by Arunima Kumar in Bengaluru; Editing by Jason Neely, Mark Potter, Rod Nickel, and David Gregorio)