The oil market witnessed a significant drop on Monday as a combination of geopolitical developments and an updated economic outlook cast a shadow over future demand. Crude oil prices plummeted after reports surfaced indicating Israel’s willingness to take military action against Iran, while the Organization of the Petroleum Exporting Countries (OPEC) revised its global oil demand forecast downward.
According to The Washington Post, Israeli Prime Minister Benjamin Netanyahu communicated to the Biden administration his plan to carry out targeted strikes against Iranian military infrastructure. This announcement, made during a call last Wednesday, suggests a potential escalation in the ongoing tensions between Israel and Iran. The report further revealed that Israel’s actions are intended to avoid any perception of interfering with the upcoming U.S. elections, recognizing that an attack on Iranian oil facilities could trigger a surge in energy prices.
Adding to the downward pressure on oil prices, OPEC released its Monthly Oil Market Report on Monday, where it slashed its 2024 and 2025 global oil demand growth forecasts. The organization reduced its 2024 estimate by 106,000 barrels per day (bpd), projecting a global demand increase of 1.93 million bpd for the year. Similarly, the forecast for 2025 oil demand growth was lowered by 102,000 bpd, bringing the projected year-over-year increase to 1.6 million bpd.
The market reacted swiftly to these developments. The United States Oil Fund USO, tracking the West Texas Intermediate (WTI) light crude, experienced a 2.01% decline in regular trading on Monday. The ProShares Ultra Bloomberg Crude Oil UCO fund, which is leveraged to crude oil prices, saw an even more significant drop, falling over 2% during regular trading and an additional 4.51% in after-hours trading.
This convergence of geopolitical uncertainty and a revised economic outlook has created a volatile environment for the oil market. The potential for heightened tensions in the Middle East and the revised demand forecast from OPEC are likely to continue influencing the direction of oil prices in the coming weeks.