Oil Prices Head for Second Weekly Loss as Geopolitical Fears Ease

Oil prices steadied on Friday but remained on track for a second straight weekly loss. The market’s recent retreat highlights a significant shift in trader sentiment, moving away from fears of a major supply disruption and toward concerns about ample global supplies.

Iran Tensions Subside, Removing a Key Price Support

Earlier this month, oil prices surged following Iran’s direct missile and drone attack on Israel. Investors feared the conflict could escalate into a wider regional war, potentially disrupting crude shipments from the Middle East, which accounts for nearly a third of global supply. However, the immediate risk has receded as both sides have shown restraint, with Israel’s response being limited and targeted.

This de-escalation has removed a major “geopolitical risk premium” that was baked into oil prices. Analysts note that the market is now refocusing on fundamental factors like supply, demand, and inventory levels, which appear less supportive for higher prices.

Supply Growth Outpaces Demand Forecasts

The core issue now facing the market is a projected surplus. Major forecasting bodies, including the International Energy Agency (IEA), have indicated that global oil supply is expected to outpace demand throughout 2024. This surplus is largely driven by robust production from countries outside the OPEC+ alliance, most notably the United States.

U.S. crude output remains at record levels, consistently above 13 million barrels per day. This steady flow from non-OPEC producers is offsetting deep production cuts maintained by OPEC+ members like Saudi Arabia and Russia. With demand growth showing signs of moderation, the scales are tipping toward an oversupplied market.

Trump Comments Add to Market Uncertainty

Adding another layer of volatility, prices gave up early gains on Friday after comments from former U.S. President Donald Trump. In an interview, he cast doubt on the possibility of a new nuclear agreement with Iran, stating a deal was unlikely. This reminder of ongoing diplomatic friction introduced fresh uncertainty, causing traders to pull back.

While a major conflict is not currently anticipated, the comments underscored that the potential for sudden political shifts affecting Iranian oil exports remains a lingering background risk for the market.

Investor Outlook and Price Trajectory

For investors, the current price action suggests a market in search of a new equilibrium. The fading of the Iran-Israel risk premium has been the dominant theme of the past two weeks. The focus is now squarely on whether demand, particularly from major economies like China, will be strong enough to absorb the growing supply.

Analysts warn that without a new geopolitical shock or a significant reduction in supply from OPEC+, prices may struggle to regain their recent highs. The coming weeks will be critical as traders assess global economic data and inventory reports for clearer signals on the balance between supply and demand.