Oil prices end lower as Iran attack fears fade and focus turns to demand

By William Watts

IEA sees tepid growth in crude demand in 2024 and 2025

Oil futures ended lower on Tuesday, consolidating after a five-day winning streak, as fears of an imminent Iranian strike on Israel faded and investors turned their attention back to concerns about the outlook for crude demand.

Read more: Feared Iranian attack on Israel a top threat to stocks in a busy week

Price moves

West Texas Intermediate crude CL00 for September delivery CL.1 CLU24 fell $1.71, or 2.1%, to close at $78.35 a barrel on the New York Mercantile Exchange.October Brent crude BRN00 BRNV24, the global benchmark, settled with a loss of $1.61, or 2%, at $80.69 a barrel on ICE Futures Europe.Back on Nymex, September gasoline RBU24 dropped 2.8% to end at $2.3747 a gallon, while September heating oil HOU24 shed 0.7% to $2.3892 a gallon.Natural gas for September delivery NGU24 dropped 1.9%, ending at $2.148 per million British thermal units.

Market drivers

Crude oil posted a five-day rally, with WTI and Brent scoring August highs on Monday, in a move driven in part by fears of an imminent retaliatory strike by Iran on Israel following the assassination late last month of a top Hamas official in Tehran.

"WTI crude is journeying south following a five-day winning streak ... mainly because an expected Middle Eastern escalation hasn't materialized" and, to a lesser extent, because of concerns about the demand outlook, Jose Torres, senior economist at Interactive Brokers, said in a note.

Iran has vowed to retaliate against Israel for the assassination of a top Hamas official in Tehran on July 31. Israel, which has neither confirmed nor denied its involvement in the death of Hamas leader Ismail Haniyeh, put its military on high alert on Monday after observing preparations by Iran and militant group Hezbollah for a potential strike, according to the Wall Street Journal.

Read: Feared Iranian attack on Israel a top threat to stocks in a busy week

Reuters on Tuesday reported that Iranian officials said only a ceasefire deal in Gaza stemming from possible talks this week would prevent direct retaliation.

In its monthly report, the Paris-based International Energy Agency said it expects demand to rise by less than 1 million barrels a day in both 2024 and 2025, largely unchanged from its July report and far slower than the rise of 2.1 mbd seen last year, due to "comparatively lackluster" macroeconomic drivers.

The IEA said that even if the Organization of the Petroleum Exporting Countries and its allies - known as OPEC+ - don't follow through with their plan to begin gradually unwinding some production cuts in the fourth quarter, global inventories could build by an average of 860,000 barrels a day next year as non-OPEC+ supply increases of around 1.5 mbd in 2024 and again in 2025 more than cover expected demand growth.

OPEC on Monday slightly lowered its forecast for demand growth for 2024 and 2025, citing softness in China. OPEC's demand-growth forecasts continue to run much higher than the IEA's at 2.11 mbd in 2024 and 1.78 mbd next year.

Despite demand concerns, "downside potential in oil prices could be limited as geopolitical tensions persist, contributing to market uncertainty and supporting crude prices. Markets are on edge regarding potential confrontations in the Middle East that could disrupt oil supplies," Li Xing Gan, markets strategist at Exness, said in a note.

Crude prices had surged on Monday as worries over a broader Middle East conflict intensified. WTI jumped more than 4%, while Brent rallied 3.3%.

-William Watts

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08-13-24 1544ET

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