Prices of oil fluctuated on Tuesday as traders focused their attention on the increasing supply and limited demands.
The US plan to buy up to 3,000,000 barrels of crude to fill its Strategic Petroleum Reserve (SPR), supported sentiments.
Prices were volatile on Tuesday, after falling 6% Monday due to easing geopolitical tensions.
Oil prices were little changed compared to Monday’s closing price.
The prices have risen again since the opening of the US stock exchanges on Tuesday.
The price of West Texas Intermediate crude on the New York Mercantile Exchange at the time of this writing was $67.36 a barrel, an increase of 0.6%. Brent oil on the Intercontinental Exchange is $71.02 per barrel, up 0.5% from its previous close.
US to buy oil from SPR
According to a Reuters report, the US Government plans to purchase up 3 million barrels crude oil for SPR.
The news comes just a week before the US Presidential elections.
The US had authorized the sale of 180,000,000 barrels of crude from its SPR by 2022 in order to lower domestic fuel prices.
Brent crude oil prices had risen to $140 per barrel by early 2022, after Russia invaded Ukraine.
The US plan to buy more oil for SPR could generate demand in the country and support prices in the next few weeks.
Since the massive sale of 2022, the US Government has bought back 55,000,000 barrels of oil for $76 per barrel. This is significantly less than the $95 per barrelled price at which it sold the oil.
Reduce tensions in the Middle East
Oil prices fell on Monday, after Israel’s attack on Iran over the weekend missed oil and nuclear sites.
Prices fell sharply as the threat of oil supplies from Iran and the Middle East decreased.
Carsten Fritsch is a commodity analyst at Commerzbank AG. He said that the market was interpreting Israel’s retaliatory attack against Iran as a defensive move, believing only military targets like missile launchers had been hit.
The market participants now believe that the risk associated with a spiraling escalation of the oil price and disruptions to supply has decreased. This is reflected by the noticeable drop in the risk premium.
According to data from the Organization of Petroleum Exporting Countries, Iran produces around 3.2 million barrels of crude oil per day. Iran’s oil exports are still under sanctions, but the country has managed to find a way to supply oil to other countries, including China.
The limited strike by Israel eased fears of further tensions in the area.
Iran has reportedly stated that the attack by Israel shouldn’t be “exaggerated” or “downplayed”.
Oil prices at appropriate levels
Commerzbank AG believes that the Brent oil price should be in the low $70 range per barrel.
Fritsch noted:
Brent oil at low 70s is an appropriate price from a fundamental standpoint, as the oil market is adequately supplied and there will be a looming surplus in the next year.
Oil supply is expected to increase in December, as OPEC+ plans to reverse some voluntary production cuts.
Saudi Arabia, de facto leader of the cartel has hinted recently that it is willing to accept lower oil prices in order to regain market shares.
The break-even price for oil production is $80 per barrel. This is the desired price level for OPEC.
Brent is currently $9 below the $80 per barrel level.
The market was focused on whether OPEC would proceed with its plan to increase production starting in December.
Moreover, even though Saudi Arabia may want to increase production, it remains to be seen whether the other members of the group will agree with the current plan.
Oil price forecast
Experts at Fxempire.com think that the immediate support price for WTI oil is around $67.50 a barrel.
Christopher Lewis, an author at Fxempire.com said in a recent note:
Oil looks weak but it will eventually become cheap enough for people to start buying it.
Brent’s psychological support is still $70 per barrel.
Oil traders will likely buy oil if the price falls below these levels, as it is attractive to them.
The US election next week is fraught with uncertainty, and geopolitical tensions fluctuate.
The US Federal Reserve policy meeting next week will also be closely watched by traders.
The Fed is likely going to reduce interest rates by 25 basis points, which could help support demand.
This post Oil Prices Stay Volatile with Potential for Buyers on Further Declines may be modified as new updates unfold
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