Oil prices declined on Tuesday as traders took profits following a sharp rally that had pushed prices to their highest levels in over a month.
The recent surge was mainly driven by fears of potential supply disruptions stemming from escalating tensions in the Middle East due to recent attacks involving Iran-backed Hezbollah and Israel’s response.
While geopolitical tensions remain high, the market appears to be pricing in a low likelihood of direct attacks on Iranian oil infrastructure. OPEC’s spare production capacity is also giving confidence that any potential shortages could be managed.
On the demand side, concerns about slow growth in China have contributed to the cautious outlook for oil. Traders are also keeping an eye on upcoming U.S. inflation data and crude oil inventory reports. A rise in crude could further pressure prices if they indicate weaker demand.
Whilst geopolitical tensions could still create volatility, the market may experience a bearish trend in the near term as market participants digest recent gains and reconsider supply and demand dynamics. However, any significant escalation in geopolitical risks or unexpected strength in demand could provide further upside momentum for crude prices.
