After experiencing a third consecutive weekly decline, oil futures saw a slight increase on Friday. However, worries surrounding the demand outlook have taken precedence over the supply risks associated with the Israel-Hamas war.
Price Action
- West Texas Intermediate crude for December delivery rose by 91 cents, or 1.2%, reaching $76.65 a barrel on the New York Mercantile Exchange. Nevertheless, it is still on track for a 4.8% weekly drop.
- January Brent crude, the global benchmark, experienced an increase of 95 cents or 1.2%, reaching $80.96 a barrel on ICE Futures Europe. It is expected to face a 4.6% decrease for the week.
Market Drivers
Traders have started to express concerns over weak economic data from China and fears of a potential slowdown in the United States and globally. The oil market witnessed prices reaching their lowest point since mid-July this week before rebounding. These gains, however, were not enough to make up for the modest rise following the Oct. 7 attack by Hamas on southern Israel.
According to Barbara Lambrecht, a commodity analyst at Commerzbank, sentiment in the oil market has shifted significantly. Initially, there was a pricing out of the geopolitical risk premium, but it has now transitioned into a marked correction phase.
Oil Prices Influenced by Supply Concerns
The rally of oil prices during the summer and fall was largely driven by concerns over supply. In July, Saudi Arabia took the initiative to cut production by 1 million barrels a day, a decision that has been extended until the end of the year. Similarly, Russia committed to reducing supply by 300,000 barrels a day, although recent data suggests they may have increased exports, adding further pressure to the market.
Many analysts believe that due to the recent decline in prices, Saudi Arabia will once again extend its production cuts voluntarily. This is likely to happen during the upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies on Nov. 26. It is expected that Russia will follow suit, although they have shown less discipline in implementing their cuts as of late. These measures to restrict production for a longer period of time will help prevent any significant decrease in prices, according to Lambrecht.
Addressing concerns about weakening oil demand, Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, dismissed such claims as a ploy by speculators. He emphasized that the market conditions do not support the notion of reduced demand and suggested it is merely a tactic employed by certain individuals.
Conclusion
Despite the recent slide in oil prices, the belief is that the efforts to control supply will be continued. Both Saudi Arabia and Russia are expected to extend their production cuts, ensuring stability in the market and preventing any further significant price drops.
Keywords: oil prices, supply concerns, production cuts, OPEC meeting, oil demand, Saudi energy minister
