LONDON (Reuters) – Oil prices tumbled more than 4% to a near two-week low on Tuesday due to a weaker demand outlook and after a media report said Israel is willing to not strike Iranian oil targets, easing fears of a supply disruption.

futures fell $3.28, or 4.2%, to $74.18 a barrel at 1118 GMT. West Texas Intermediate futures lost $3.33, or 4.5%, hitting $70.50 a barrel. Both benchmarks had earlier fallen by $4, reaching their lowest since the beginning of October.

Both benchmarks had settled about 2% lower on Monday. They are down about $5 so far this week, nearly wiping out cumulative gains made after investors became concerned Israel could strike Iran’s oil facilities in retaliation for the latter’s Oct. 1 missile attack.

Israeli Prime Minister Benjamin Netanyahu told the U.S. that Israel is willing to strike Iranian military targets and not nuclear or oil ones, the Washington Post reported late on Monday.

Israel expanded its targets in its war against Hezbollah militants in Lebanon on Monday, killing at least 21 people in an airstrike in the north.

“Weakening demand has led to traders withdrawing the ‘war premium’ from prices,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“However, geopolitics still continues to support oil at this level. Without geopolitics in the equation, oil would have tumbled even more, maybe even below $70 per barrel mark amid the current weakening demand narrative.”

Both the Organization of the Petroleum Exporting Countries and the International Energy Agency this week cut their forecasts for global oil demand growth in 2024, with China accounting for the bulk of the downgrades.

OPEC has projected a much stronger expansion of global demand for the year than the IEA. But its “run of lower adjustments is something of an admission of wishful thinking,” said John Evans at oil broker PVM.

China’s customs data showed that September oil imports fell from a year earlier, and the country’s economic growth is also likely to undershoot Beijing’s target for 2024, according to a Reuters poll.

Investing.com – Citigroup has lifted its bull case for oil prices after assessing historical risk events, given the potential for supply disruption in the Middle East. 

The US bank keeps its baseline forecast for $74/bbl Brent in the fourth quarter of this year and $65/bbl during the first quarter of 2025, with an indicative probability of 60%, owing to weak underlying oil market fundamentals.

However, Citi has lifted its bull case scenario for oil prices for the 4Q’24 and 1Q’25 to $120/bbl from $80/bbl, lifting its indicative probability to 20%, up from 10%, given the heightened potential of the market to fear or realize supply losses during the months ahead.

A recent analog to the potential escalation in the Middle East from here is the Russia-Ukraine conflict in Feb’22, during the beginning of which rallied to average $116/bbl in 2Q ’22, the bank said. 

“Our new bull case scenario is based on supply fears and disruptions similar in magnitude and duration to that which occurred during 2022,” analysts at Citi said, in a note dated Oct. 14. 

Losses that may arise from escalation could range from an attack on a refinery disrupting and liquids supply (around 0.1-0.7 million barrels per day), to losing most of Iran’s crude oil exports (around 1.5m b/d), all the way up to impacting different degrees of impacts on the oil flows through the Strait of Hormuz (up to 20m b/d), “although we view the latter as highly unlikely.”

Supply losses might also come from any response by Iran that targets regional energy assets. 

“In our bull case scenario, we model higher actual disruptions than was the case during Russia-Ukraine, however higher levels of spare capacity and stock levels, and a weakening demand environment, may mean a similar price response,” Citi added. 

The bank’s bear scenario includes OPEC+ raising production, starting in December, and a reduction in oil supply risks sees prices at $60/bbl for the 4Q’24 at $60/bbl and $55/bbl in 1Q/25, with an indicative probability of 20%, down from 30%.

At 05:50 ET (09:50 GMT), Brent traded 4.9% lower to $73.66 a barrel.

Investing.com — Oil prices fell sharply Tuesday, extending recent losses amid growing concerns over a demand slowdown, while a report suggesting that Israel will not attack Iranian oil facilities also weighed. 

At 08:10 ET (12:10 GMT),  fell 3.9% to $74.44 a barrel, while fell 4.2% to $70.75 a barrel.

Crude prices tumbled over 2% on Monday, and are down about $5 a barrel so far this week.

Demand fears grow on OPEC cut, China concerns 

Fears of slowing oil demand were a major weight on prices, especially following somewhat underwhelming signals from top importer China.

China’s Ministry of Finance over the weekend outlined a slew of fiscal measures to support the economy. But traders were underwhelmed by a lack of clarity on the timing and scale of the measures, as well as a lack of clear measures aimed at supporting private consumption.

Data on Monday also showed China’s oil imports fell for a fifth consecutive month, signaling that weak economic conditions were chipping away at China’s appetite for crude.

Fears of slowing demand were exacerbated by the OPEC cutting its 2024 and 2025 global oil demand forecasts for a third consecutive month. 

The cartel expects 2024 oil demand growth of 1.93 million barrels per day, down from prior forecasts of growth of 2.03 million bpd. The cartel cited China as a key motivator of the downgrade. 

Israel to spare Iran’s oil facilities? 

Oil prices were also dented by a lessening of the risk premium after a report on Monday said that Israel will not attack Iran’s oil and nuclear facilities. 

Such a potential strike was expected to mark a major escalation in the conflict, and had seen traders bidding up oil prices on expectations of the attack.

Fears of all-out war in the Middle East were a major boost to oil prices in recent weeks, especially after Iran launched a missile strike against Israel earlier in October. Focus is now squarely on Israeli retaliation. 

Citi lifts oil price bull case 

Despite the talk of a reasonably restrained reaction from Israel, Citigroup has lifted its bull case for oil prices after assessing historical risk events, given the potential for supply disruption in the Middle East. 

The US bank keeps its baseline forecast for $74/bbl in the fourth quarter of this year and $65/bbl during the first quarter of 2025, with an indicative probability of 60%, owing to weak underlying oil market fundamentals.

But it lifted its bull case scenario for oil prices for the 4Q’24 and 1Q’25 to $120/bbl from $80/bbl, lifting its indicative probability to 20%, up from 10%, given the heightened potential of the market to fear or realize supply losses during the months ahead.

A recent analog to the potential escalation in the Middle East from here is the Russia-Ukraine conflict in Feb’22, during the beginning of which Brent oil rallied to average $116/bbl in 2Q ’22, the bank said. 

“Our new bull case scenario is based on supply fears and disruptions similar in magnitude and duration to that which occurred during 2022,” analysts at Citi said, in a note dated Oct. 14. 

(Ambar Warrick contributed to this article.)