Brent crude plunges over 5.5%

October 08, 2024 (MLN): Brent crude futures, the global oil benchmark, dropped over 5.5% after Libya's National Oil Corporation (NOC) informed about rising production to 1.13 million barrels per day, the highest level since August.

Another factor weakening sentiment is the Chinese economy, as evidenced by a decline in Chinese equities.

Additionally, concerns about supply disruptions from the Israel-Iran conflict and a major Gulf of Mexico hurricane also subsided.

"The conflict in the Middle East is boiling over and ignites fears of escalation and oil supply disruptions. The most likely scenario is another soft shock, with oil prices rising and easing again before year-end," said Norbert Ruecker of investment bank Julius Baer, as Reuters reported.

Hezbollah left the door open on Tuesday to a negotiated ceasefire with Israel after Israeli forces raised the stakes in the conflict with its Iran-backed enemy by making new incursions in the south of Lebanon.

Israeli defence minister Yoav Gallant said on Tuesday that it appeared that the replacement of slain Hezbollah leader Sayyed Hassan Nasrallah had also been eliminated.

The oil price rally began after Iran launched a missile barrage on Israel on October 1. Israel has sworn to retaliate and said it was weighing its options, with Iran's oil facilities considered a possible target.

Some analysts said an attack on Iranian oil infrastructure was unlikely and warned oil prices could face considerable downward pressure if Israel focuses on any other target. Investors were spooked when the German industrial giant announced it was reviewing its plans for the production of green steel.

"Although it would be irresponsible to claim that the dust has settled on Iran’s direct and ominous involvement in the conflict, for now the threats of Israeli assaults on Iranian oil infrastructure have not materialized yet," said PVM analyst Tamas Varga.

In the United States, Hurricane Milton intensified into a Category 5 storm on its way to Florida after forcing at least one oil and gas platform in the Gulf of Mexico to shut on Monday.

Traders will also be looking out for the latest U.S. crude oil inventory data, with analysts expecting stocks to rise by 1.9 million barrels in the week ended October 4, according to a preliminary Reuters poll.

The American Petroleum Institute is due to post its tally of U.S. stockpiles at 2030 GMT on Tuesday, followed by official data from the Energy Information Administration on Wednesday.

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