Oil prices held steady Tuesday after Monday’s 6% drop – the biggest since October – despite the US announcing it will buy oil for the Strategic Petroleum Reserve (SPR).
The US will add up to 3 million barrels by May next year but overall market sentiment is clouded by weak demand forecasts due to slow economic recovery in China and a lull in global energy needs.
This recent drop followed Israel’s targeted strikes on Iran which avoided key oil infrastructure so it was a controlled response. According to Hiroyuki Kikukawa, president of NS Trading, the market is now hoping for a temporary pause in escalations. But with a soft winter demand outlook prices will face headwinds as the year goes on.
9/ 🛢️ Commodities Update: Oil prices fell over $4 per barrel due to easing geopolitical tensions, with Brent at $71.93 and WTI at $67.75. Gold prices remained near record highs despite slight declines. #CommodityMarket
— Elever (@EleverAlpha) October 29, 2024
SPR Buys Provide Short Term Support
The US buying for the SPR provided some short term support to oil prices. While the reserve purchases may calm some price volatility in the short term, the long term impact will be limited without a broader demand rebound.
- The SPR purchases are the largest since the 2022 SPR release to stabilize domestic prices during inflation. But as Kikukawa says demand is still weak and oil prices will be down until mid winter demand kicks in.
- China’s recovery and energy demand is still uncertain and will impact global sentiment. Unless Chinese demand rebounds big time, pressure will continue especially as economic indicators show steady but slow industrial activity.
Adding to that the American Petroleum Institute and Energy Information Administration’s weekly inventory reports are out this week which will provide more information on the supply side and near term price direction.
Geopolitical Tensions Impact Supply Fears but Limit Escalation Risks
Middle East tensions are still causing volatility in the energy markets but the recent limited strikes have eased the immediate supply chain risks. ING Economics analysts say that the restrained actions from regional players might shift the market drivers back to supply-demand fundamentals. While de-escalation prospects have improved, there is still a risk of renewed conflict as Iran has warned of “severe consequences” if tensions flare up again.
📉 Oil prices drop 5% as limited Israeli counterattacks on Iran unfold. Brent crude now at $71.92/bbl. Market reacting to geopolitical tensions—keeping a close eye on developments! #OilMarket #BrentCrude #Geopolitics #Russia pic.twitter.com/vPQbDm8l5z
— Rakesh Kumar Munda (@imrakesh1990) October 29, 2024
And to make things more complicated the US has warned of strategic consequences if regional players escalate. This backdrop with varying supply levels will keep oil prices on edge as the market absorbs the Middle East instability.
WTI Crude Oil Price Forecast
Crude oil is trading around $67.40, showing a slight dip of 0.81% today as selling pressure keeps prices lower. The $68.18 level acts as a key hurdle, and if prices can move above it, we may see a boost in buying momentum. Immediate resistance is noted at $68.85, with further levels at $69.72 and $70.65.
On the lower end, support is found at $66.91, with additional support at $66.19 and $65.45, which could help stabilize prices if selling continues.
The 50-day EMA at $69.44 and 200-day EMA at $70.79 indicate a bearish trend, suggesting that prices may struggle to rise significantly unless they clear the $68.18 mark.
Key Insights
- SPR Purchases Cushion Prices: Short-term support seen from U.S. SPR plans; broader demand outlook remains weak.
- Geopolitical Tensions Linger: Regionally limited strikes ease immediate fears but signal ongoing risks for market volatility.
- Demand Uncertainty Persists: China’s energy recovery remains in focus, with U.S. inventory reports providing additional insights.
In summary, while the U.S. reserve purchases may ease immediate concerns, bearish fundamentals continue to guide long-term price expectations as weak demand and geopolitical factors influence the market.
