Brent crude prices remained near a seven-month low on Monday despite ongoing geopolitical tensions in West Asia, as global market sentiment was dampened by renewed fears of a slowing U.S. economy.
Earlier in the year, Brent crude saw a rise due to OPEC+ supply cuts and geopolitical conflicts. However, oil prices have been on a downward trend for the past four weeks, driven by economic data from the U.S. and China that indicated weakening demand. On Monday, Brent crude fell by as much as 0.83% to $72.91 per barrel before trading at $73.76 at 9:41 a.m. GMT.
Several factors are contributing to the current market conditions. Peter McGuire, CEO of XM Australia, noted that the market has largely discounted the impact of geopolitical risks and inflation on consumers. Vandana Hari, CEO of Vanda Insights, added that while market participants are keeping an eye on rising tensions in West Asia, they are not factoring in a supply-risk premium for crude prices. Hari attributed the decline in financial market sentiment to fresh concerns about the U.S. economy, which emerged last week.
McGuire pointed out that the U.S. dollar has strengthened over the summer, though it has depreciated against the yen. A stronger U.S. dollar generally leads to lower oil prices, as it makes oil more expensive for holders of other currencies, reducing demand and thereby contributing to lower prices.
Hari also noted that Israel and Iran have recently limited their military actions against each other, which has led to market expectations that any new conflicts will be managed similarly, thus preventing major disruptions to oil supplies.
Additionally, McGuire highlighted that falling base metal prices, including copper, silver, lead, and aluminum, have also contributed to the decline in crude oil prices.
Looking ahead, McGuire suggested that the risk of escalating conflict in West Asia could increase in the coming weeks, potentially drawing in support from China and Russia. Such developments might lead to a significant rise in crude prices. However, Warren Patterson, head of commodities strategy at ING Groep NV, emphasized that while geopolitical risks and demand concerns continue to impact the oil market, significant price increases would require actual disruptions to crude supply.
As of now, the oil market remains cautious, with sustained price strength dependent on substantial geopolitical or supply chain disruptions.
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