Intensified Global Oil Price Volatility Amid Complex Situations

Tensions did not escalate as expected, leading to a significant plunge in international oil prices on the 8th, with the $80 per barrel milestone being regained and then lost. Experts interviewed believe that whether the situation in the Middle East will spiral out of control remains to be seen, and coupled with weak global economic demand, the possibility of a short-term surge in oil prices is slim.

International oil prices lose the $80 threshold

The lack of further escalation in the Middle East situation allowed the tense global market nerves to temporarily relax, and international oil prices experienced a significant drop after five consecutive days of increases. West Texas Intermediate (WTI) crude oil futures, an important benchmark for international oil pricing, fell by $3.57 on the 8th, closing at $73.57 per barrel, a decrease of 4.63%; London Brent crude oil futures prices fell by $3.75, closing at $77.18 per barrel, with the same percentage decrease of 4.63%.

According to statistics from Guosen Securities, the average price of Brent crude oil in September was $72.9 per barrel, and the average price of WTI crude oil futures was $69.5 per barrel. Since October, the tense situation in the Middle East has been continuously heating up, with Iran launching a large-scale missile attack on Israel, causing international oil prices to rebound significantly, returning above $80 per barrel. In the past five trading days, international oil prices have risen by more than 10% consecutively, reaching $80.9 and $75.5 respectively before the drop on the 8th.

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Although oil prices have retreated, the complex and volatile situation in the Middle East may still lead to significant fluctuations in international oil prices. CNBC reported on the 9th that after the outbreak of the Israeli-Palestinian conflict on October 7 last year, the global oil market was barely disrupted. However, market sentiment is undergoing subtle changes recently. Last week, due to concerns that Israel might target Iran's oil industry in retaliation for Iran's missile attacks, oil prices surged significantly, and many industry analysts expressed concerns about the real threat to oil market supply. On the 8th, international oil prices also fluctuated greatly due to various rumors about the Middle East situation.

Multiple factors叠加 to cause a significant drop in oil prices

According to reports from American media, there were mainly two reasons for the significant drop in international oil prices on the 8th: First, in response to last week's missile attacks, Israel will focus on Iranian military facilities, which reduced market expectations that Israel would attack Iranian oil facilities; second, the U.S. Energy Information Administration (EIA) lowered its global crude oil consumption growth forecast for 2025 from 1.5 million barrels per day to 1.3 million barrels per day in its monthly outlook report, and lowered its price forecast for Brent and WTI crude oil per barrel by about 8%, to $77.59 and $73.13 respectively. The EIA stated that the reduction in crude oil prices reflects a slowdown in global crude oil demand growth in 2025.

Li Yan, a crude oil analyst at Longzhong Information, told a reporter from the Global Times that in terms of news, the possibility of oil supply disruption due to the situation between Israel and Iran has eased, and there is a possibility that Hezbollah in Lebanon and Israel may cease fire. In addition, the U.S. Energy Information Administration lowered its forecast for oil demand growth next year and adjusted down its oil price forecast. After five consecutive trading days of increases, international oil prices experienced profit-taking, causing European and American crude oil futures to fall by more than 4.6%.

Li Yan said, "The Middle East situation pushed international oil prices to rise continuously during the 'Eleven' period. The oil market has been waiting for Israel's response to last week's Iranian missile attacks, but analysts believe that Israel may target Iran's military facilities rather than oil facilities, which allows the tense market to temporarily relax."

According to the latest data from the American Petroleum Institute (API), as of the week ending October 4, U.S. crude oil inventories increased by 10.9 million barrels. Li Yan believes that the increase in U.S. oil inventories is very large, exceeding market expectations. The insufficient demand caused by the weak global economy will become a drag on international oil prices. He said, "It is the combination of multiple factors that caused the international oil prices, which had been rising consecutively, to experience a significant plunge on the 8th."Oil prices are unlikely to soar, but volatility is set to increase

Li Yan stated that the key factor in the future trend of oil prices is still the changes in the situation in the Middle East. However, he believes that the possibility of the Middle East situation getting out of control is not high, hence there is no basis for a significant surge in international oil prices.

In addition, the overall global economic environment continues to suppress oil prices. Li Yan believes that the International Monetary Fund (IMF) has downgraded the global economic growth rate to 3.2% for this year, lower than last year. Until the fourth quarter, international oil prices will be constrained by this. Unless there are events like the pandemic or the Russia-Ukraine conflict, international oil prices will not rise significantly. $80 may be the recent peak for Brent crude oil prices; and downwards, there is no room for a significant drop. However, Li Yan cautions that the volatility of international oil prices will increase.

According to a CNBC report, Daniel, Vice Chairman of S&P Global and an energy expert, said on Tuesday that due to the ongoing escalation of tensions in the Middle East, the global economy is entering an unprecedented "dangerous period". The report also speculated that the worst-case scenario would be Iran taking action to block the Strait of Hormuz. Hildebrand, Chief Commodity Analyst at Sweden's SEB Bank, said, "If the situation worsens and the Strait of Hormuz is closed for a month or longer, then Brent crude oil prices could soar to $350 per barrel, and the world economy would be in trouble, even though oil prices would fall back below $200 per barrel after a period of time." But he added, "However, judging from the current oil prices, the market does not seem to think the possibility of this happening is very high."