KEY POINTS
- Oil prices rose after hitting two-week lows on Tuesday.
- OPEC’s demand forecast weighed on the market, despite short-covering.
- Geopolitical tensions threaten oil supply amid Iran-Israel conflict risks.
Wednesday saw a small increase in oil prices, which had dropped to almost two-week lows due to OPEC’s lowered demand prediction. However, as the dollar reached a seven-month high, gains were still modest.
OPEC cuts demand forecasts as market prices stabilize
U.S. West Texas Intermediate (WTI) crude futures jumped 31 cents, or 0.5%, to end at $68.43 per barrel, while Brent crude futures increased 39 cents, or 0.5%, to settle at $72.28 per barrel.
After the Organization of the Petroleum Exporting Countries reduced its forecasts for the rise of the world’s oil consumption in 2024 and 2025, both benchmarks finished Tuesday at their lowest points in over two weeks. The negative revision, which is OPEC’s fourth for 2024, was ascribed to weakened demand in China, India, and other regions. “The market is still processing the forecast, which is undoubtedly negative,” stated Bob Yawger, Mizuho’s director of energy futures.
According to the U.S. Energy Information Administration, oil output in the United States and throughout the world is expected to reach somewhat higher record highs this year. In 2023, it is anticipated that the United States will produce an average of 13.23 million barrels per day (bpd), while the world will produce 102.6 million bpd.
Reuters reported that additional backing was provided when Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin reiterated over the phone on Wednesday their dedication to “close coordination” within OPEC+.
The threats posed by Iran and the potential escalation between Iran and Israel further raise the possibility of supply disruptions due to geopolitical tensions. According to Clay Seigle, an independent political risk consultant, “Israel will eventually attack Iranian oil assets if this war goes on.”
U.S. Dollar strength limits oil’s price recovery
According to the ministry’s official website, Shana, Iran’s oil minister stated that Tehran has preparations in place to continue oil production and exports in case the United States imposes sanctions.
After U.S. inflation statistics for October met expectations, the dollar’s strength weighed on oil prices, which rose to a nearly seven-month high against key currencies. Reuters explained that demand may be slowed by a rising dollar since it usually makes oil more expensive for buyers who use foreign currencies.
In other market statistics, the American Petroleum Institute reported that U.S. crude stockpiles decreased by 777,000 barrels last week when analysts had predicted a 100,000-barrel increase. Due to the Veterans Day holiday, official government data will be released one day later on Thursday at 11 a.m. ET.
