KEY POINTS
- Oil prices dipped slightly after recording their biggest weekly rise in over a year, driven by geopolitical concerns and supply cuts.
- Brent crude and West Texas Intermediate (WTI) saw significant gains, but expectations of stable global supply capped further increases.
- Investors are closely monitoring the Middle East tensions and OPEC+ supply decisions for future price movements.
Oil prices fell on Monday after their biggest weekly increase since October last year. This pullback is typical of markets after last week’s geopolitical tensions and supply cuts from key producers’ rally. Nevertheless, Brent crude and WTI are close to recent peaks, and both indices continue to indicate underlying worries about future supply disruptions.
Brent crude, the international oil marker, fell by 0.4 per cent to $84.19 per barrel while the WTI, the US benchmark, declined to $82. These declines came after a week in which both benchmarks recorded their biggest weekly gains in more than a year on the back of rising tensions in the Middle East and additional production cuts by the OPEC+ cartel.
Political and geographical factors as well as supply reductions determine the prices.
This was mainly occasioned by political risks invigorating supply worries based on events in the Middle East. The market is keen on any event that may have an impact on the supply of oil from the major producing nations.
Furthermore, voluntary production reductions from the Arab Organization of Petroleum Exporting Countries (OPEC+) specifically Saudi Arabia and Russia have been instrumental in trimming the oil markets around the world.
These voluntary production reductions have been taken forward to the fourth quarter of 2024, meaning that there will be less crude available and prices will rise. However, due to these cuts, there are no expectations of stable overall global supply hence no further price increase.
Reuters has reported that although the situation in the global political arena is still rather unstable, the long-term trends in the oil market seem to be more balanced, with many experts expecting the medium-term oil price increase. Many believe that others which are not part of the OPEC+ group especially Americas, particularly producers like the United States will provide a stable supply to the market so that prices do not go vertically northward.
Global supply chain: investors consider
When prices of oil began to stabilize, investors shifted their focus to the long-term global supply situation. However, the market has been made tighter by the ongoing OPEC+ cuts, other major producers especially those in North America are increasing production to meet the demand. This has helped to curb further heightened oil price flare up despite the recent fluctuation.
Energy analysts are still hopeful but conservative in their expectations that oil prices are expected to remain relatively stable in the next few weeks. Nonetheless many things depend on the geopolitical situation and the additional decisions of OPEC+ regarding additional increase in the volumes of their supply restrictions.
Other influences that will cause a rise of future prices include the effects of the winter season and the seasonal consumption and thus dependence of most European countries on fuels.
Gardening as market fluctuations approach
When the oil prices are as high as they are now, they have been at multi-year highs, there is always prudence in the market. Any more politico-territorial instabilities more specific in oil producing countries such as the Middle East are likely to force up the prices.
At the same time, changes in OPEC+ policies may either make the market even tighter and supply constrained or not. Currently traders are waiting and watching a tray of indicators, including a US production, China’s consumption, and global demand (or lack of it). With the week on progress the key focus will lay on any alterations in supply or demand which might influence the price.
