Oil prices fall as the reality of weak global demand outweighs the risk of a wider war in the Middle East.

World oil prices fell sharply after Israeli retaliation Last weekend they struck Iranian military installations, not its energy infrastructure as feared.

World oil prices rose sharply on October 2 after Iran fired about 200 missiles at Israel.It is part of a series of rapidly escalating attacks between Israel and Iran and its Arab allies that threaten to push the Middle East closer to a region-wide war.

Iran is the world’s seventh-largest oil producer, but the wider conflict in the Middle East could have an impact on some of the world’s biggest energy producers in the region.

As many see that threat easing, at least in the short term, the price of benchmark U.S. crude and Brent crude, the international benchmark, fell 6% on Monday. US oil fell well below $70 a barrel.

Israeli military said its planes targeted sites used by Iran to launch missiles at Israel, as well as surface-to-air missile sites.

Here’s a look at the current situation and forecast for oil and gas prices:

Brief price surge ends as weak demand returns to focus

The price of US crude oil fell 6% on Monday following Israel’s retaliatory strike on Iranian military sites rather than the oil fields of the world’s seventh-largest oil producer.

As a result, the price of a barrel of US oil is well below $70 after jumping above $77 earlier this month. Oil and gasoline prices have fallen sharply from yearly highs in April. A gallon of gas can be purchased for less than $3 at more than half of U.S. gas stations, according to energy analysts.

Focus has returned to fundamentals in global energy markets, which this year have been a story of abundant supply and falling demand. The main driver is economic slowdown in Chinamajor energy consumer.

Beijing said this month that China’s economy grew 4.6% year-on-year in the July-September quarter, down from 4.7% annual growth in the previous quarter and missing its official growth target of “around 5%” in the quarter. 2024

The conflict in the Middle East still worries energy markets, but not as much anymore.

Prices rose briefly this month after Iran sent missiles to Israel, but many experts believe Israel’s response over the weekend measuredpotentially ending the cycle of retaliatory attacks on each side, at least for now.

AND OPEC+ alliancemade up of members of a cartel of producers and allied countries, including Russia, has less influence on world prices than in, say, the 1970s, when the oil embargo that followed the outbreak of the Yom Kippur War in 1973 quadrupled oil prices times.

Since then, global oil supplies have changed radically, with the US becoming the world’s largest oil producer. Months of war between Israel and Hamas and Hezbollah, two Iranian proxies, have done little to raise prices for OPEC and its 12 oil-producing countries. Only the possibility of direct confrontation between Israel and Iran moved the situation from a dead point.

These are the basics

The long-term expectation is that oil prices will decline rather than rise. This is because the balance between supply and demand has shifted toward supply, a dynamic that typically pushes oil prices down.

In its latest review of energy markets, the International Energy Agency said oil demand grew by the smallest amount since 2020 in the first half of this year. OPEC+ Alliance said it plans to put more oil on the market starting in December.

What’s happening to energy prices this year?

Oil futures rose quickly at the start of the year, reaching $85 a barrel in April, but oil prices have moved almost entirely lower since then, with prices at the pump following suit.

Gas prices in the US are roughly in line with oil prices, as the price of oil is half the cost of a gallon of gasoline. Between Friday and Monday, when Israel carried out a restrained counterattack on Iran, the price of a barrel of oil fell by $4.

This year, OPEC tried to set a floor on oil prices, but without much success.

Saudi Arabia and allied oil producers in June extended production cuts into next year in hopes of propping up low prices that have not recovered even amid turmoil in the Middle East and this year’s summer travel season.

At the same time, the United States is pumping unprecedented volumes of oil. The U.S. Energy Information Administration expects average daily U.S. crude oil production to be 13.2 million barrels per day this year and expects production to rise only in 2025.

What will happen next to oil and gasoline prices?

A number of energy experts believe oil prices have peaked this year and will continue to decline, likely meaning more disruption for motorists.

“The limited nature of Israeli strikes on Iran should reduce fears of a wider war and reduce some of the geopolitical premium for crude oil,” Tom Kloza, global head of energy analysis at the Oil Price Information Service, said in a social media post over the weekend. “Today’s average retail gas price in the U.S. is $3.13 per gallon, with 55% of properties selling for less than $3 per gallon.”

Kloza told the AP this month that 2025 looks even worse for oil producers, “with supply almost certainly exceeding demand by 500,000 to 1 million barrels per day.”

Gasoline prices are already falling: the US presidential election is a week away.

The national average price of $3.13 per gallon is down more than 4 cents from last week and down a whopping 37 cents per gallon from last year, according to the AAA Auto Club.

However, in many states prices are much lower than the national average. The average price per gallon in Texas is $2.67, which is similar to the price in many southern states. Prices in Western states are much higher, including about $4.60 in California.