Navigating the Oil Market: Oil prices displayed limited movement on Friday, sustaining a sense of stability after a previous session marked by a modest increase. However, the broader trend indicates that prices are poised to decline for the third consecutive week, primarily due to fading concerns about potential supply disruptions stemming from the Israel-Hamas conflict. This shift in focus has allowed worries regarding global demand to take centre stage in the energy market.
As of 0157 GMT, Brent crude futures for January exhibited a state of equilibrium, holding steady at $80.01 a barrel. Concurrently, U.S. West Texas Intermediate (WTI) crude futures for December stood at $75.67, marking a marginal decline of 7 cents. The current week has witnessed a 5.7% downturn in Brent futures, while WTI has experienced a 5.9% decrease since the previous week. Notably, this marks the lengthiest weekly losing streak for both oil contracts since the four-week drop observed from mid-April to early May.
ANZ Research offered insights on the prevailing market dynamics, stating, “The threat of disruptions to supplies from the Middle East continues to fall. The conflict remains well contained within Gaza, despite concerns it would escalate as neighbouring Arab nations show their displeasure.” The recent announcement from the White House on Thursday revealed that Israel had agreed to a four-hour daily pause in military operations in certain parts of north Gaza. However, a comprehensive cessation was not immediately apparent.
This perception of diminishing supply disruptions from the Israel-Hamas conflict aligns with escalating concerns about global demand, particularly emanating from China, the world’s largest oil importer. The release of weak economic data from China earlier this week has intensified apprehensions about a potential downturn in demand.
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Adding to these concerns, Chinese refiners, who represent the most significant buyers of crude oil from Saudi Arabia, have communicated a reduced demand for supply from the oil-rich nation for the upcoming month of December.
Despite grappling with these challenges, analysts at Citi remain optimistic about a potential rebound in oil prices. They anticipate a stabilisation in prices following their recent decline to the lowest levels observed since July earlier this week. Citi analysts elaborate on their perspective, stating,
We expect prices to consolidate, and we maintain our near-term price forecasts with support expected to come from refinery maintenance easing and a shift in the risk-reward for investors following the recent sell-off. Indeed upside risks abound from current levels, with the potential for (the Organization of the Petroleum Exporting Countries and allies) to look to act to defend prices, while supply risks in the Middle East remain elevated.
This nuanced analysis underscores the delicate balance in the oil market, where geopolitical factors intertwine with global economic conditions, shaping the trajectory of oil prices in the near term. As market participants navigate through evolving dynamics, the coming weeks will likely offer further insights into the resilience and adaptability of the energy market in the face of geopolitical tensions and shifting demand patterns.
Our Reader’s Queries
What moves the oil market?
Oil prices are primarily influenced by the balance between supply and demand in the market. The cost of extracting and producing oil also plays a significant role. Within the oil market, there are two types of players: speculators who bet on price movements and hedgers who manage risk in oil production or consumption. Uncommon terminology and short sentences make this information easy to understand for all readers.
What is the prediction for the oil market?
The decrease in oil inventories is expected due to the OPEC+ production cuts announced on November 30. Our analysis predicts that the Brent price will rise from an average of $78/b in December 2023 to an average of $83/b throughout 2024.
Who controls the oil in the world?
OPEC is a coalition of nations that possess some of the world’s largest oil reserves. As of 2021, OPEC members held a staggering 72% of the world’s confirmed crude oil reserves. In 2022, they were responsible for approximately 38% of the world’s crude oil production.
What happens if oil prices go up or down?
While high oil prices can negatively impact businesses and consumers through increased transportation and manufacturing costs, lower oil prices can benefit sectors where fuel costs are a primary concern, such as manufacturing. However, the unconventional oil activity may suffer as a result. These insights are provided by the U.S Energy Information Administration.