Oil Price Drops Sharply as Iran Supply Fears Ease and Global Demand Weakens

Oil prices plunged on Tuesday as concerns over a potential disruption in Iranian oil supply eased and a weakening global demand outlook added pressure. Brent crude futures dropped 4.5% to $73.95 per barrel, while West Texas Intermediate (WTI) saw a similar 4.7% decline, closing at $70.35. The oil market is now testing new lows, erasing gains driven by earlier fears tied to the Israel-Iran conflict.

Market sentiment shifted after reports suggested Israel may avoid targeting Iran’s oil infrastructure, reducing fears of supply cuts. Israeli Prime Minister Benjamin Netanyahu reportedly informed U.S. officials that any military action would focus on Iranian military assets, not oil facilities. This move alleviated concerns about a significant disruption in Iran’s oil exports, leading traders to remove the “war premium” from prices.

In addition to easing Iran-related supply fears, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) both revised their global oil demand forecasts downward for 2024. The IEA highlighted a potential global surplus by 2025, while OPEC cut its 2024 demand growth estimate to 1.93 million barrels per day (bpd), down from 2.03 million bpd, citing weaker demand from China.

The combination of reduced Iran supply fears and a weaker demand outlook is likely to keep oil prices under pressure in the short term. Traders are watching key technical levels, with oil prices potentially falling to the $66-$64 range if demand continues to weaken.