On Wednesday morning (August 7th) in the Asian market, international oil prices were hovering at low levels, with US crude oil currently trading around $72.93 per barrel. On Tuesday, oil prices continued their weak trend and failed to move away from the near six-month low hit on Monday. Although financial markets have recovered from the recent downturn, the EIA monthly report lowered price expectations, and Iran is struggling between retaliation or restraint, easing concerns about the geopolitical situation. However, the decline in Libyan production still provides some support for oil prices.

Brent crude oil futures fell 1.48% on Tuesday, closing at $76.11 per barrel. US crude oil futures fell 1.3% on Tuesday, closing at $72.96 per barrel. Both oil prices have been declining for four consecutive trading days.

Previously, Iran's vow to retaliate against Israel and the United States after the killing of two radical group leaders has raised concerns about the possibility of a broader war erupting in the Middle East, which could have a direct impact on the region's supply.

But the United States has sent a message to Iran: do not let the situation escalate at a critical moment in the Middle East.

The spokesman of the US State Department said on Monday that at the "critical moment" in the Middle East, as Secretary of State Antony Blinken said, the US has been urging other countries through diplomatic channels to tell Iran that the escalation of the situation in the Middle East is not in their interests. Antony Blinken said that Washington is "carrying out intense diplomatic activities around the clock" to help calm tensions because of fears that Iran is preparing to retaliate against Israel. US State Department spokesperson Miller said, "One of the key focuses of our engagement is to urge countries to convey a message to Iran, urging countries to make it clear to Iran that escalating the conflict is not in their interest, and attacking Israel again is not in their interest.

Two senior Iranian sources said that Russian President Putin has also requested Iran's Supreme Leader Khamenei to respond with restraint to Israel's alleged killing of Hamas leaders and advised against attacking Israeli civilians.

Iran is facing a dilemma as it considers how to launch a meaningful strike against Israel without triggering a potential war that could sweep across the Middle East. A few days ago, what was widely seen as an imminent Iranian retaliation was postponed.

Iran can choose Israeli military facilities as targets, similar to the missile and drone attacks carried out in April. At that time, with the help of the United States, Britain, France, and Jordan, the Israeli Air Force shot down the vast majority of missiles, resulting in minimal damage. Subsequently, under pressure from the United States, Israel carried out limited strikes on Iranian air bases, and the tension quickly eased. Another option is to use Iran's network of armed proxies, including Iraqi militias, Hezbollah in Lebanon, and Houthi militants in Yemen, to strike Israel with missiles and drones. Burcu Ozcelik, a senior researcher at the Royal United Services Institute, pointed out that the goal will be to "crush Israel's air defense capabilities, destroy military and potential civilian infrastructure, and the operation may last for several days

It is worth mentioning that the US Energy Information Administration (EIA) predicted in its Short Term Energy Outlook report released on Tuesday that the supply-demand balance in the US oil market will become more tight this year, but also lowered its forecast for oil prices.

EIA will increase its forecast for US oil demand in 2024 by 100000 barrels per day to 20.5 million barrels per day. EIA maintains its forecast for the growth of world oil demand in 2024 unchanged, with material consumption expected to increase by 1.1 million barrels per day to 102.9 million barrels per day.

EIA stated that US oil production will increase by 300000 barrels per day this year, reaching a record high of 13.23 million barrels per day, slightly lower than the previous forecast of 320000 barrels per day.

Even though the market is expected to tighten, EIA has lowered its forecast for US crude oil prices this year to $80.21 per barrel, which is 2.2% lower than the previous forecast of $82.03.

EIA has lowered its forecast for world oil demand in 2025 to 104.5 million barrels per day, compared to the previous forecast of 104.7 million barrels per day.

However, concerns about the decline in production from Libya's Sharara oil field, which produces 300000 barrels per day, have intensified market worries about supply shortages. The Libyan National Oil Company announced on Tuesday that due to the protests, the oil field will gradually reduce production.

The recent decline in crude oil and refined oil inventories in major trading centers has also provided support for oil prices.

UBS analyst Giovanni Staunovo said, 'The oil fundamentals still suggest that the oil market is in short supply, and oil inventories are still declining.'.

Staunovo stated that last week's gasoline demand in the United States may have exceeded 9 million barrels per day, which has boosted people's confidence in the economy.

The latest data shows that US API crude oil inventories increased by 176000 barrels last week, with an expected increase of 850000 barrels; API gasoline inventory increased significantly by 3.313 million barrels last week, with market expectations for a decrease of 1.9 million barrels. This data is slightly biased towards bearish oil prices.

Investors also need to pay attention to the EIA crude oil inventory series data released at 22:30 in the evening, and continue to monitor the geopolitical situation and global stock market performance. On this trading day, China's July trade data will also be released, and investors need to pay close attention.

From a technical perspective, US crude oil has been in a unilateral downward trend since July 5th, and there is still no signal of bottoming out in the short term. We need to be cautious of the risk of further oil price decline; As we have already held the support near the half year low of 71.39, we still need to pay attention to the possibility of bottoming out due to fluctuations.

Daily chart of major US crude oil contracts