Commodities
Oil rebound pauses on reality check over impact from Israel-Hamas war
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© Reuters.
Investing.com – Oil has only traded a day since the escalation in Israel-Hamas fighting, yet traders have already hit the pause button on the market’s rally, for a reality check on the impact from the conflict.
After Monday’s run-up of more than 4% in prices of both U.S. crude and its UK peer Brent, the two oil benchmarks traded in the negative by Tuesday’s noon hour in Asia. The pause on the oil rally came in the absence of credible estimates on how many barrels of oil produced, traded or shipped out of the Middle East would be stranded by latest tensions in the region.
By 12:01 local in Singapore (00:01 ET), New York-traded West Texas Intermediate, or , crude for delivery in November was down 36 cents, or 0.4%, to $86.02 per barrel.
On Monday, the U.S. crude benchmark settled up $3.59, after rising almost $4.50 at the session high to reach $87.23.
London-traded for the most-active December contract was down 34 cents, or 0.4%, to $87.81.
In the previous session, Brent closed up $3.57, after also rising nearly $4.50 at the session high like WTI to reach $89.
It was important to put the brakes on any oil rally to prevent the market from getting ahead of itself again, like it did in September, despite concerns about global inflation and stagnating European growth, said John Kilduff, a partner at New York energy hedge fund Again Capital.
“Don’t get me wrong, the war that’s going on now is big,” said Kilduff, who’s also a veteran commentator on the impact of Middle East strife on oil markets. “But is the oil trade really getting stifled by this conflict, aside from the squeeze on supply already being applied by OPEC+? Or is oil going up just in sympathy with overall tensions in the region.”
“It’s alright to assign some geopolitical risk to oil in situations like this, but not to the extent that the geopolitical risk itself becomes a free lunch for the trade,” said Kilduff. “As of now, there’s no proof that there’ll be a meaningful reduction in barrels because of this war alone and that includes any clampdown on oil exports from Iran, which is a supporter of all things Hamas. Until and unless we get evidence of that, crude prices should not trade much higher than where they did last week.”
Oil prices hit five-week lows last week, with WTI falling to $81.50 and Brent plumbing $83.44.
In support of oil markets on Monday, Saudi Energy Minister Abdulaziz bin Salman said production cuts by the global group of oil producers known as OPEC+ will continue.
OPEC+ says cuts will continue, but no word on Iranian supplies
The Saudis and Russians, who jointly lead the OPEC+, are withholding a daily supply of 1.3 million barrels between them, while the rest of the 23-nation alliance is contributing to a squeeze of another 2 million barrels or more.
“I honestly believe that the best thing I could say is that the cohesion of OPEC+ should not be challenged,” Abdulaziz said on the sidelines of a climate conference in Riyadh. “We’ve been through the worst, I don’t think we will have to go through any terrible situation at all,”
“Yes, we may be delayed with a decision on what to do, but I would not forfeit the precautionary approach, even if it goes beyond a month or two, or three or four months, or five months,” he added.
But there was no word about any change to Iranian supply, which is what the market was really looking out for.
Since late 2022, Washington has turned a blind eye to surging Iranian oil exports, bypassing American sanctions. The priority in Washington was an informal détente with Tehran so as to allow the world more in the advent of the OPEC cuts.
As a result, Iranian oil output is estimated to have surged nearly 700,000 barrels a day this year – the second-largest source of incremental supply in 2023, behind only US shale oil. The White House could enforce those sanctions against Iran now in support of Israel.
Early last week, oil hit more than one-year highs of $95 for WTI and $97 for Brent, responding to aggressive OPEC+ cuts.
From there, the market tumbled on a backdrop of macro and economic factors as hit 16-year highs and the soared to a 10-month peak while consumption of gasoline — the No. 1 fuel product in the United States — hit a seasonal low of 25 years. Specifically, US crude fell 9% last week and Brent 11%, the biggest weekly slump since March. It was a selloff deeper than any weekly rally in oil over the past three months.
Commodities
Oil prices settle lower after weak August jobs report adds to demand concerns
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Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
Commodities
Goldman Sachs expects OPEC+ production increases to start in December
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(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Commodities
Citi, Bank of America see oil prices potentially going to $60
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Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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