The oil prices rose on Monday due to the increased uncertainty in the Middle East following the fall of Syria President Bashar al-Assad’s government.
On state television, Syrian rebels declared that they had ousted President al Assad and ended a family dynasty of 50 years.
The tension in the Middle East escalated as the rebels launched a lightning-fast offensive, which raised fears about further uncertainty and put the oil supply at risk.
The price of West Texas Intermediate crude was $77.55 per barrel at the time this article was written, an increase of 0.5%.
Brent crude oil at the Intercontinental Exchange closed at $71.41 per barrel, an increase of 0.4% over the previous close.
The recent developments in Syria have added a layer of political insecurity to the Middle East and provided some support for the market,” Tomomichi Akuta senior economist at Mitsubishi UFJ Research and Consulting, told Reuters.
Price rises are limited by low demand
Despite the continuing rise in tensions in Middle East, a lack of demand around the world has affected sentiments.
Last week, the Organization of the Petroleum Exporting Countries (OPEC) and its allies delayed their planned increase in output by three months until the end of March.
The cartel extended its steep voluntary production reductions of 2.2 millions barrels per day until the end of March.
The group has also extended the overall production cuts to 3,65 million barrels per day until the end of 2026.
The OPEC must continue to cut massively their output to maintain prices.
Haresh Meghani, FXstreet’s editor, stated in a recent report:
Saudi Arabia’s price reductions to Asian buyers have raised concerns over a possible slowdown in the demand for oil from China, which is the world’s largest importer.
Worries about a possible supply glut could also limit any significant upside in crude oil prices.
Saudi Aramco has reduced the price of crude oil for Asian buyers in January 2025 to its lowest level since early 2021.
Oversupply concerns
Global supply will rise next year despite the fact that demand, especially in China, is low.
According to the International Energy Agency (IEA), oil production from non-OPEC nations, led by the US is expected to increase by 1.5 million barrels a day by 2025.
This is likely to comfortably outstrip demand growth, which is expected below the 1-million-barrel-per-day mark.
Baker Hughes, a world-renowned oilfields company, reported that last week, the number of oil and gas rigs in the US reached its highest level since mid September.
US production to increase
The US has already reached record crude oil production. Oil production will likely increase even more with the election victory of Donald Trump, the US president-elect.
Trump is expected approve oil and gas drilling in federally owned lands, and off the coasts of the US.
The former president Joe Biden is set to reverse several climate regulations.
Commerzbank AG expects that the output of the world’s largest oil producer will rise on a medium-to-long term.
The crude oil price will continue to fall in the months ahead.
Menghani is added to the list
It is prudent to wait until there are strong buy-throughs before positioning yourself for a further appreciation of the commodity.
This article Oil prices rise amid Middle East conflict, but weak demand limits gains may be updated as new developments unfold.
