Oil prices are on track to decline for the third consecutive month, despite ongoing conflict in the Middle East.

Introduction

Oil prices are heading for their third consecutive monthly decline despite persistent conflict in the Middle East. This downward trend is primarily driven by concerns over global demand and strong supply forecasts that outweigh regional tensions, including escalating military actions involving Israel.

Oil Prices Show a Sharp Decline

On Monday, Brent crude futures for November delivery fell by 0.5%, settling at $71.63 per barrel, while U.S. West Texas Intermediate (WTI) futures slipped 0.2% to $68.06. Earlier in the session, both benchmarks had briefly risen by more than $1, but by mid-afternoon, they had reversed those gains.

Brent crude is expected to record a significant drop of over 9% for the month, marking its most substantial decline since November 2022. Similarly, WTI is on track for a 7% decrease since the end of August.

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Middle East Tensions and Oil Supply

While the potential involvement of Iran in the ongoing conflict in the Middle East raised concerns earlier, those fears have not materialized into higher prices. Since last week, Israeli forces have intensified airstrikes in Lebanon, targeting Hezbollah and Hamas leaders, while also attacking Houthi positions in Yemen. Despite these developments, which could typically cause oil prices to spike, the market has remained relatively unaffected, likely due to strong global supply forecasts.

Weak Demand and China’s Economic Slowdown

In contrast to these geopolitical tensions, global oil demand has shown signs of weakening. Recent data from China, the world’s second-largest economy and top oil importer, revealed a fifth consecutive month of contraction in the country’s manufacturing sector. Moreover, the services sector saw a significant slowdown in September, adding to concerns over the nation’s economic health.

While Beijing has announced fiscal stimulus measures, these efforts have so far failed to lift oil prices. The data suggests that the global oil market continues to be driven more by demand-side issues than supply-side risks.

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Recovery of Libyan Oil Production

Adding further pressure to the market is the potential recovery of oil production in Libya. On Monday, the country’s eastern-based parliament appointed a new central bank governor, which could help resolve the ongoing crisis that has severely limited Libya’s oil output. As Libyan production ramps up, it could further dampen prices in the coming weeks.

Conclusion

Despite the ongoing conflict in the Middle East, oil prices are on track for their third monthly decline, driven by strong supply forecasts and weakened global demand. Even with geopolitical tensions in play, the economic slowdown in key regions like China and the potential recovery of Libyan oil production continue to exert downward pressure on the market.