Oil prices on track for third consecutive monthly decline amid Middle East tensions

Oil prices set to fall: Oil prices remained stable on Monday, poised to experience a third consecutive month of decline as strong supply forecasts and uncertainty surrounding demand overshadow concerns regarding escalating conflicts due to Israeli strikes in Lebanon and Yemen.

As of 0933 GMT, Brent crude futures for November delivery fell by 10 cents to $71.88 a barrel, while the more active December contract rose by 6 cents to $71.60. U.S. West Texas Intermediate (WTI) futures also dropped 10 cents to $68.08 a barrel. Earlier in the session, both benchmarks had recorded gains of over $1.

Brent crude is on track to witness nearly a 9% decrease for the month, marking its steepest drop since November 2022, while WTI is set for a decline of more than 7% since August.

Iran's role in conflict

Market sentiment on Monday was partly buoyed by the potential for Iran, a major oil producer and member of the Organisation of the Petroleum Exporting Countries (OPEC), to become more involved in the expanding conflict in the Middle East. Recent Israeli military actions have targeted Hezbollah and Hamas leaders in Lebanon, as well as Houthi positions in Yemen, with all three groups receiving support from Iran.

Despite these developments, Helima Croft from RBC Capital Markets suggested that many market participants might overlook the heightened tensions, as there have yet to be any significant disruptions to physical oil supplies, and Iran has not shown any inclination to escalate its involvement in the ongoing conflict.

Furthermore, oil prices had a muted reaction to the recent announcement of fiscal stimulus measures from Beijing, which raised questions about their potential to revitalise China’s struggling demand for oil. Recent data indicated that China's manufacturing sector contracted for the fifth consecutive month, and the services sector experienced a sharp slowdown in September.

Market pressures mount

In addition to these factors, the market was pressured by reports indicating that half a million barrels of Libyan crude exports could resume as a central bank dispute appears to be resolving. Moreover, speculation arose that Saudi Arabia may be moving away from its $100 per barrel oil price target as OPEC+ plans to unwind voluntary supply cuts starting in December.

Later on Monday, traders will be looking for insights from Federal Reserve Chair Jerome Powell regarding the central bank's future monetary policy, with additional remarks from seven other Fed officials expected throughout the week.

(With Reuters Inputs)