Oil prices experienced a significant decline on Tuesday, dropping by more than 4 per cent to reach a near two-week low. This drop was primarily driven by a weaker demand outlook and a media report indicating that Israel is willing to refrain from striking Iranian oil targets, thereby alleviating concerns about potential supply disruptions.

Brent crude futures decreased by $3.28, or 4.2 per cent, settling at $74.18 a barrel at 1118 GMT. Similarly, West Texas Intermediate futures fell by $3.33, or 4.5 per cent, to $70.50 a barrel. Both benchmarks had earlier declined by $4, marking their lowest levels since the beginning of October. On Monday, both benchmarks had already settled about 2 per cent lower. This week, they have collectively dropped by about $5, nearly erasing the gains made after investors worried about a potential Israeli strike on Iran's oil facilities in response to Iran's October 1 missile attack.

According to a late Monday report in the Washington Post, Israeli Prime Minister Benjamin Netanyahu informed the US that Israel is prepared to target Iranian military sites rather than nuclear or oil facilities. Additionally, Israel expanded its targets in its attack against Hezbollah militants in Lebanon on Monday, resulting in an airstrike that killed at least 21 people in the north.

Priyanka Sachdeva, a senior market analyst at Phillip Nova, commented, "Weakening demand has prompted traders to remove the 'war premium' from prices. However, geopolitical factors continue to support oil prices at this level. Without these geopolitical considerations, oil prices could have fallen even more, potentially dropping below the $70 per barrel mark amid the current weakening demand scenario."

Both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) recently revised their forecasts for global oil demand growth in 2024, with significant downgrades attributed to China. While OPEC anticipates a stronger expansion of global demand compared to the IEA, John Evans at oil broker PVM noted that OPEC's series of lower adjustments reflects a degree of wishful thinking. China's customs data revealed that September oil imports fell year-on-year, and the country's economic growth is expected to miss Beijing's target for 2024, according to a Reuters poll.