In what have been a chaotic few days on the geopolitical front, international crude oil investors are not having any of it. The macroeconomic events have taken over the geopolitical risks, in no uncertain manner, with crude oil last seen trading at near 8-month lows, entering a bear zone. It may be surprising for a few that crude oil has continued its journey south despite the most high-profile killings in Iran and Lebanon – and ones that carry the risk of at least an in-kind retaliation by the affected parties or at worst, a full-blown war.

But for now, all eyes are firmly focused on what is happening in and around the major demand centers for crude oil, and there is not much to write home about on that front. The US job data took everyone by surprise, showing unemployment at a multi-year high of 4.3 percent. While this also means the US Fed rate cut is now more certain than ever before and may even pave the way for more cuts in 2024 than earlier envisaged, it does not hide the cracks in the American economy.

The turmoil is so deep that investors now expect it to get worse before recovering – despite the summer season keeping US fuel demand firm. China has been another major disappointment on the demand front, with oil imports having gone down a massive 11 percent year-on-year during the first half of 2024. What is worse is the projection for large-scale manufacturing and consumer demand for the next half in both Asian and European markets. The US may still avoid a recession, but a sizable number of investors have started to voice concerns, not ruling out a recession. There is also a growing feeling that the Fed may well have missed the bus, and any action in September may be too little too late to put the rails back on track.

Things are not looking that bright on the supply side either, at least at the moment. Opec has recently posted its highest output in months and still sticks to the gradual rollback of the production cuts, as agreed upon in the last meeting. The US crude stockpile has been building gradually, as US production remains on the mark.

That said, OPEC is not expected to sit back and watch the oil prices fall. Time and again, Opec Plus has made its intent very clear to keep the market balanced, and oil at current prices disturbs the fiscal balances of two of its most powerful players, Saudi Arabia and Russia. Saudi Arabia, in the not-so-distant past, has led from the front in taking an additional cut outside of the production quota in a bid to balance the market. More of the same cannot be ruled out, if oil prices do not bounce back.

The geopolitical risk may well have subsided in the wake of macroeconomic headwinds, but the heat is still very much on in the Middle East. Actual supply disruptions are not an immediate fear even in a possible scenario of an Iraq-Israel conflict getting deeper, but the risk premium can surely make a comeback.