Easing supply concerns drag crude oil price back

Oil prices slumped by more than 4% early on Tuesday as traders have yet to see an actual supply disruption in the Middle East while focusing on China’s underwhelming demand again.

Both benchmarks, WTI Crude and Brent Crude, were down by about 3% as of 9:30 a.m. EDT on Tuesday. The U.S. benchmark fell below $75 per barrel, and the Brent price was down to the $78 a barrel handle, after breaking above $80 on Monday in an 11% total gain in oil prices since Iran fired missiles on Israel a week ago.


The war premium has started to evaporate, especially after the recent rally and the return of business in China after the Golden Week holiday.

As China returned from the holiday, the authorities said they were confident that growth in the world’s second-largest economy would hit their forecasts this year. The officials, however, refrained from unveiling additional measures to prop up the economy and oil demand, which disappointed traders and speculators.

China’s National Development and Reforms Commission (NDRC) failed to announce any new supportive measures. Without policy support, an economic slowdown could keep China’s oil demand subdued in the short to medium term,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note on Tuesday.

The return of Libya’s oil production and exports after more than a month of hiatus due to the political stalemate has also weighed on the prices.


“Oil can keep ascending only for so long purely based on perceptions and not actual supply disruption,” oil brokerage PMV said in a Tuesday note.

“The geopolitical risk premium has an obscure and unforeseeable expiry date. When that point arrives and is not replaced by genuine and supportive fundamental factors, in the case of the Middle East conflict by a palpable supply shortage, the move higher will not be sustainable.”