Global oil prices fall sharply after a Israeli retaliatory strike Over the weekend, they targeted Iranian military sites rather than their energy infrastructure as feared.

Crude prices climbed globally on October 2 after Iran fired nearly 200 missiles at Israelpart of a series of rapidly escalating attacks between Israel, Iran and its Arab allies that threaten to bring the Middle East closer to regional war.

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

While many see this threat diminishing, at least in the short term, the price of benchmark U.S. crude and Brent crude, the international benchmark, fell 6% on Monday. U.S. crude fell well below $70 a barrel.

THE Israeli military said its planes targeted the facilities Iran used to make the missiles fired at Israel as well as surface-to-air missile sites.

Here is an overview of the current situation and outlook for oil and gas prices:

Brief price hike ends as weak demand returns to center stage

The price of U.S. benchmark crude fell 6% on Monday after a weekend retaliatory strike by Israel against Iran targeted military sites rather than the oil fields of the world’s seventh-largest crude producer.

This places the price of a barrel of American crude well below $70 after jumping above $77 at the start of the month. Oil and gasoline prices are each down sharply from their annual highs in April. A gallon of gasoline at more than half of the pumps in the United States can be had for less than $3, according to energy analysts.

Attention has returned to the fundamentals of global energy markets, characterized this year by abundant supply and falling demand. A chief driver is slowing economic growth in Chinalarge energy consumer.

Beijing said this month that China’s economy grew 4.6% annually in the July-September quarter, down from 4.7% annual growth in the previous quarter and below the official objective of growth of “around 5%” for 2024.

Middle East conflict continues to disrupt energy markets, but not as much

Prices rose briefly this month after Iran sent missiles to Israel, but many experts view Israel’s weekend response as measurepotentially ending a cycle of retaliation from each side, at least for now.

And the OPEC+ alliancemade up of cartel members of producers and allied countries, including Russia, have less influence on world prices than, for example, in the 1970s, when the oil embargo that followed the start of the Yom Kippur War in 1973 quadrupled oil prices.

Since then, the world’s oil supply has been dramatically changed, with the United States becoming the world’s largest oil producer. Months of war between Israel, Hamas and Hezbollah, two Iranian proxies, have done little to raise prices for OPEC and its 12 oil-producing countries. Only the possibility of a direct confrontation between Israel and Iran made things happen.

These are the fundamentals

In the long term, oil prices are expected to fall, not rise. This is because the balance between supply and demand tilts toward the supply side, a dynamic that typically pushes oil prices lower.

In its latest update on energy markets, the International Energy Agency said oil demand in the first half of this year increased by the smallest amount since 2020. Meanwhile, supplies continued to increase and the OPEC+ Alliance announced plans to put more oil on the market starting in December.

What’s happening with energy prices this year?

Oil futures prices rose rapidly at the start of the year and reached $85 a barrel in April, but they declined almost entirely from there and prices at the pump followed suit.

U.S. gas prices loosely track crude prices, as the price of oil is half the price of a gallon of gasoline. Between Friday and Monday, during which Israel launched a measured counterattack in Iran, the price of a barrel of oil fell by $4.

OPEC attempted to establish a floor for oil prices this year, without much success.

Saudi Arabia and allied oil-producing countries in June extended production cuts into next year in hopes of supporting weak prices that have failed to rebound even amid unrest in the Middle East and this year’s summer tourist season.

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

What’s next for oil and gas prices?

A number of energy experts believe oil prices have peaked this year and will continue to erode, which will likely mean more relief for motorists.

“The limited nature of Israeli strikes against Iran should ease fears of a broader war and reduce some of the geopolitical premium for crude oil,” said Tom Kloza, global head of energy analysis at the Energy Service. information on oil prices, in a post on social networks this weekend. “Today, the average retail gasoline price in the United States is $3.13/gal, with 55% of locations under $3/gal.

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 one week before the American presidential election.

The national average price of $3.13 per gallon is down more than 4 cents from last week and 37 cents per gallon from this time last year, according to the AAA auto club.

However, in many states, prices are well below national prices. The average price of a gallon in Texas is $2.67 and is close to that of many Southern states. Prices in Western states are much higher, including nearly $4.60 in California.