Brent crude oil recorded a drastic decline of over 6% on Monday, falling to $71.46 per barrel, while West Texas Intermediate dropped by 6% to $67.44. These significant price losses follow the Israeli attacks on Iran over the weekend and the subsequent reserved response of Iran’s Supreme Leader Ayatollah Ali Khamenei.
The oil prices responded to the reportedly limited escalation of tensions between Israel and Iran, as Khamenei did not issue direct threats of retaliation. "These declines indicate that prices are once again driven by macroeconomic factors such as weak demand in China," explained Bill Farren-Price, Senior Research Fellow at the Oxford Institute for Energy Studies.
Despite Geopolitical Uncertainties, Weak Demand Outlook Continues to Dominate, Particularly Due to Slowing Economic Recovery in China. Analysts at Goldman Sachs Emphasize that the Focus is Shifting from Middle East Conflicts to Oversupply Risks in 2025, as OPEC Members Plan to Lift Voluntary Production Cuts This Year.
The decision by Saudi Arabia to abandon its unofficial target of $100 per barrel and increase production from December 1 strengthens bearish tendencies. "The geopolitical risk premium in oil prices is limited, as tensions between Israel and Iran have not significantly impacted oil supply from the region so far, and reserve capacities are high," said Sophie Huynh, Senior Cross-Asset Strategist at BNP Paribas Asset Management.
While tensions between Israel and Iran have the potential to disrupt the oil supply, the current market situation shows that macro forces continue to push the price down. The recent price declines suggest that the market views the current round of reprisals as intercepted.
The American benchmark West Texas Intermediate reacted similarly to Brent, underscoring global uncertainty and the sensitivity of oil prices to geopolitical developments. "This development means that the macroeconomic forces driving oil prices down are temporarily gaining the upper hand again," Farren-Price further stated.
