In the early hours of Tuesday, international oil prices suddenly plummeted, with Brent crude prices falling below $75. The catalyst was Israel's announcement that it would only target Iran's military facilities, rather than its oil or nuclear infrastructure. This news alleviated market concerns about a further escalation in the Middle East, causing the geopolitical risk that had previously supported oil prices to rapidly dissipate. Oil prices had already been showing weakness for most of Monday, fluctuating and declining, indicating that without geopolitical tension, prices lose upward momentum.
Market analysts believe that Israel's limited strike plan reduces the likelihood of a full-scale war, and that the geopolitical premium driving oil prices up has peaked. Subsequently, oil prices are likely to gradually move away from the geopolitical risk premium. However, investors remain cautiously awaiting Israel's next actions. Additionally, the U.S. has recently intensified measures, such as deploying the THAAD defense system and increasing sanctions on Iran, to reassure Israel and keep the Middle East situation under control. Some analyses suggest that if Israel makes a limited response to Iran's recent ballistic missile attacks, it could mark the end of the current conflict between the two sides.
Meanwhile, weak global oil demand is further depressing oil prices. Following the U.S. Energy Information Administration's (EIA) downward revision of crude demand forecasts last week, OPEC also lowered its oil demand growth expectations for this year and next for the third consecutive month in its October monthly report. Although OPEC's demand estimates remain higher than those of the EIA and the International Energy Agency (IEA), the weak demand limits the supportive impact of OPEC+ production cuts on oil prices.
As geopolitical risks cool and demand prospects worsen, oil prices may come under additional pressure in the future. In the domestic refined oil market, refining spreads are expected to recover, and investors may actively seize related opportunities.
