Oil prices decline as traders assess the risk premium against demand worries

Oil prices decline as traders assess the risk premium against demand worries

Oil prices decline as traders assess the risk premium against demand worries

Both benchmarks increased by around 1.5% on Monday as tensions in the Middle East significantly increased as a result of a missile assault on a petroleum tanker in the Red Sea and US forces stationed in Jordan close to the Syrian border.

Regarding the risk premium, market players were also debating how high it should be given that the Middle East crisis has not yet directly impacted oil supply.

On Monday, oil prices dropped more than a dollar a barrel as worries about demand were heightened by China's struggling real estate market, which caused traders to reevaluate the supply risk premium resulting from escalating Middle East tensions.

U.S. West Texas Intermediate oil prices were down 59 cents at $77.42 and Brent crude futures were dropped 62 cents at $82.93 a barrel at 1430 GMT.

Both benchmarks increased by around 1.5% on Monday as tensions in the Middle East significantly increased as a result of a missile assault on a petroleum tanker in the Red Sea and US forces stationed in Jordan close to the Syrian border.

Since then, however, prices have shifted to China, the largest oil importer in the world, where a real estate crisis has worsened due to a Hong Kong court's decision to liquidate the massive China Evergrande Group.

According to John Kilduff, a partner at Again Capital LLC, "the market is retreating from the war risk premium because the China situation is the biggest impediment for the entire market."

Regarding the risk premium, market players were also debating how high it should be given that the Middle East crisis has not yet directly impacted oil supply.

Gary Cunningham, director of energy advice company Tradition Energy, said, "We're looking at a premium of about $10 a barrel right now, when it should really be just $3 or $4 based on the essentials of real petroleum demand."

In the meanwhile, historically high interest rates were under scrutiny after the inability of European Central Bank officials to agree on a date for interest rate cuts on Monday.

Naphtha is a feedstock used in petrochemicals, and Russia is expected to reduce its exports of it by around one-third, or between 127,500 and 136,000 barrels per day.based on information from LSEG ship-tracking and dealers.The study claims that when operations were hampered by fires at refineries in the Baltic and Black Sea, its overall exports decreased.

On Monday, a drone targeted another Russian oil complex, the Slavneft-Yanos refinery in Yaroslavl. However, Russian authorities claimed to have thwarted the assault.

"The decline will probably be viewed as an irreversible buying opportunity given the ongoing and serious hostilities in the Middle East and the attacks that have negatively impacted Russian refineries," oil broker PVM analyst Tamas Varga said.