Crude oil prices rose more than 1% Monday, after falling 7% the previous week. The market was focused on concerns about demand.
Last week, oil price dropped sharply as a result of concerns over China’s demand and the easing of fears about potential disruptions to supply in the Middle East.
The price of West Texas Intermediate Crude Oil on the New York Mercantile Exchange at the time this article was written was $69.69 per barrel. This is an increase of 1.5% over the previous close.
Brent crude oil traded at $73.91 a barrel on the Intercontinental Exchange, an increase of 1.2%.
After prices fell sharply in the last week, traders have turned to bargain-buying.
Oil prices are no longer influenced by geopolitical premiums
Over the past week, the risk premium associated with oil prices has decreased significantly due to the conflict in the Middle East.
Oil prices soared by more than 10% after Iran attacked Israel on 1 October. Brent oil has breached the $80 mark for the first since August.
The Middle East holds over half the world’s reserves of oil. Escalating tensions in the region threaten the supply.
The risk premium on oil prices decreased after reports that Israel might not have targeted Iran’s oil installations in response to its October 1 strike.
James Hyerczyk of Fxempire.com said that despite the ongoing conflict between Israel, Hezbollah and Syria, there is no immediate danger to supply.
Market focuses on OPEC Production
Carsten Fritsch is a commodity analyst with Commerzbank AG. He said:
The oil market will likely focus on the weaker fundamentals of the industry and the oversupply that is looming next year, unless there are any developments which lead to a new assessment.
The oil market will be dominated by the production of the Organization of Petroleum Exporting Countries (OPEC) and its allies, as the cartel has increased output since December.
Fritsch stated that the market was waiting for signs to confirm whether or not this production increase would actually be realized, or if it could possibly be delayed again.
Oil prices could drop further if the cartel proceeds with its plan to undo some of the voluntary cuts in production that were made in December.
The bullish mood could be boosted by an announcement from OPEC or Saudi Arabia that they will postpone their increase.
Since the beginning of this calendar year, several members of OPEC+ have reduced their oil production voluntarily. This is equivalent to 2.2 millions barrels of oil per day.
US inventories offer some support
According to the Energy Information Administration, US crude oil stocks fell by 2.2 million barrels a day in the week ending October 11.
After a steep drop in oil prices, the data released last week was a welcome relief.
The report showed, however, that US crude oil production reached a record of 13.5 millions barrels per week in the week ending October. The US is the biggest oil producer in world.
Continue to see a bearish trend
Oil prices will likely remain in the bearish territory, as fears over a poor Chinese demand outlook is likely to continue to influence sentiment.
Both OPEC as well as the International Energy Agency cut their estimates for oil demand growth between 2024 and 2025.
Hyerczyk of Fxempire.com said in a recent report:
If the bearish trend continues, prices could reach as low as $63.46.
The traders should be cautious and keep an eye on the developments in the Middle East as well as the US economic data. These may bring a temporary relief in prices, but a sustained recovery is unlikely in the short term.
This post Crude Oil Prices Rise 1% But Bearish Sentiment Dominates Market may be updated as new developments unfold.
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