Oil prices saw an uptick on Friday, poised to end the week higher due to concerns about potential supply disruptions from the Middle East, despite indicators of softening demand in certain markets.
As of 11:44 am UAE time, Brent crude, which accounts for two-thirds of the world’s oil, rose by 0.27 percent to $74.58 per barrel, while West Texas Intermediate, the US crude benchmark, gained 0.26 percent to $70.37 per barrel.
“While oil bulls may not be in peak form lately, risks tend to lean to the upside heading into weekends due to the potential for an escalation in the Middle East conflict,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Traders are closely monitoring Israel’s potential response to Iranian missile strikes on October 1, with some concerned that targeting Iranian oil facilities could significantly disrupt global supply. However, reports suggest that Israel will likely concentrate on Iranian military targets instead of nuclear or oil facilities.
“Should Israel’s expected reprisal attacks on its territory avoid nuclear and/or energy infrastructure, traders may price out what’s left of today’s geopolitical risk premium,” said Ehsan Khoman, head of commodities, ESG, and emerging markets research at MUFG. “This will leave not much in the way of price support given the risks of oversupply in 2025 coming into view,” he added in a research note on Thursday.
The International Energy Agency (IEA) recently projected a “sizeable” oil surplus in 2025 if major disruptions do not occur. Non-Opec+ oil production, led by the Americas, is expected to increase by 1.5 million barrels per day (bpd) in 2024 and 2025, with contributions from the US, Brazil, Guyana, and Canada exceeding 1 million bpd annually.
Oil’s weekly gains were tempered by an unexpected rise in US crude inventories, which surged by 5.5 million barrels to 426 million barrels in the week ending October 18. This increase, reported by the US Energy Information Administration, exceeded the 270,000-barrel rise anticipated by analysts polled by Reuters.
Meanwhile, investors are also focused on China’s efforts to stimulate economic growth amid signs of slowing crude demand due to an economic slowdown and a shift toward electric vehicles. China has announced a series of stimulus measures to address challenges, including reduced manufacturing output, a property market downturn, and increased unemployment. In its latest and largest economic stimulus move since the pandemic, China’s central bank lowered interest rates, reduced mortgage rates for existing homeowners, and injected significant liquidity into the economy.
“Demand is stagnating in the western world and also in China, while supply swells incrementally in the Americas,” said Norbert Rucker, head of economics and next-generation research at Julius Baer. “[Opec+] will eventually revive parts of their ample spare capacity due to their unwillingness to structurally cease market share,” he added.
The Opec+ alliance, facing weak crude prices, extended its voluntary output cut of 2.2 million bpd until the end of November in response to falling demand.
