Oil prices fall 4% as demand fears outweigh Middle East risk

Oil prices fell more than 4 percent early Tuesday as traders were yet to see a real supply disruption in the Middle East, focusing again on sluggish demand from China.

Both benchmarks, WTI Crude and Brent Crude, were down about 3% at 9:30 a.m. EDT Tuesday. The US benchmark fell below $75 a barrel and Brent fell to $78 a barrel after breaking above $80 on Monday, with oil prices up 11% overall since Iran fired missiles at 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 vacation, authorities said they were confident growth in the world’s second-largest economy would meet their forecasts this year. Officials, however, refrained from revealing additional measures to support the economy and oil demand, disappointing traders and speculators.

“China’s National Development and Reform Commission (NDRC) has not announced any new support measures. Without policy support, an economic slowdown could keep China’s oil demand low 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 political impasse also weighed on prices.

“Oil can only continue to rise for so long based on perceptions and not the actual supply disruption,” oil brokerage PMV said in a note on Tuesday.

“The geopolitical risk premium has an obscure and unpredictable expiration date. When that point is reached and is not replaced by genuine and supportive fundamentals, in the case of the Middle East conflict through a palpable lack of supply, the upward movement will not be sustainable.”

By Charles Kennedy for Oilprice.com

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