Oil prices remained relatively stable on Tuesday after a decline in the previous session, bolstered somewhat by a U.S. initiative to purchase oil for the Strategic Petroleum Reserve (SPR). However, broader worries about diminished future demand growth continued to weigh on the market.
Brent crude futures edged up by 3 cents to $71.45 a barrel by 04:15 GMT, while U.S. West Texas Intermediate crude saw a 7-cent increase, reaching $67.45 a barrel. Both benchmarks had dropped 6 percent on Monday, hitting their lowest levels since October 1. Investor sentiment was shaken by indications that the conflict in the Middle East was unlikely to escalate, but concerns about weakening global oil demand for this year and next came to the forefront.
Supply disruptions and U.S. purchasing plans
Fears of supply disruptions in the Middle East, stemming from escalating tensions, had significantly influenced oil prices over the past month. On Monday, the U.S. announced plans to acquire up to 3 million barrels of oil for the SPR, with deliveries scheduled through May of next year. However, this purchase will limit the government’s ability to invest in further acquisitions until additional funding is approved by lawmakers.
Inventory reports and market sentiment
A preliminary Reuters poll indicated that U.S. crude oil and gasoline inventories likely increased last week, while distillate stockpiles were expected to decline. The American Petroleum Institute is set to release a weekly report on Tuesday, with the Energy Information Administration following up with its own report on Wednesday.
U.S. elections and oil market pressure
Market sentiment towards oil was also on edge ahead of the upcoming U.S. presidential elections, less than a week away. The dollar strengthened in anticipation of the elections, putting pressure on oil markets as traders prepared for a competitive race between Donald Trump and Kamala Harris. Recent polls and prediction markets suggested Trump was gaining traction, which could lead to inflationary policies in the months ahead. A change in administration is also likely to shift U.S. policies regarding the Middle East.
Key economic indicators on the horizon
Before the elections, attention is drawn to a series of key economic indicators from major economies this week, which are expected to provide further insights into demand. Purchasing managers index data from China, the largest oil importer, is due on Thursday, followed by U.S. gross domestic product data for the third quarter. The PCE price index—an inflation measure preferred by the Federal Reserve—will be released on Friday, along with nonfarm payroll data for October.
Monday’s price drop and market reactions
Oil prices dropped significantly on Monday, prompted by reduced fears of a potential war in the Middle East. Traders adjusted crude prices by removing risk premiums and refocusing on demand, which is expected to weaken in the coming months. Brent oil futures for December delivery fell by 4.1 percent, closing at $72.97 a barrel, while West Texas Intermediate crude futures decreased by 4.2 percent to $68.76 a barrel by 19:57 ET (23:57 GMT). Both contracts neared their lowest levels since early October.
Read more: Global oil demand to reach over 100 million barrels per day by 2050: Saudi Aramco
Upcoming economic data and market outlook
In addition to the situation in the Middle East, this week will feature several critical economic indicators that could shed light on global oil demand. GDP data from both the U.S. and Eurozone is anticipated soon, along with the PCE price index. Additionally, China’s purchasing managers index data will be released later this week, following significant stimulus announcements from the country over the past month.
Friday’s price movement and risk premium
On Friday, oil prices experienced a slight increase, gearing up for a positive weekly close amid ongoing concerns about rising tensions in the Middle East, which have maintained a risk premium in the market. Traders remained wary of potential conflicts that could disrupt supply from the region, and U.S. diplomatic efforts for a ceasefire have seen limited progress. By 21:04 ET (01:04 GMT), December Brent crude futures rose by 0.4 percent to $74.70 per barrel, while West Texas Intermediate futures climbed 0.5 percent to $70.55 per barrel.
Weekly gains amid inventory concerns
Both Brent and West Texas Intermediate futures recorded weekly gains of 1 percent to 2 percent, recovering somewhat from earlier October losses. However, a more robust recovery in crude prices was hindered by data showing a larger-than-expected rise in U.S. inventories, suggesting a loosening supply in the world’s largest fuel-consuming country. Additionally, the strength of the dollar influenced crude prices, as ongoing concerns about a slower pace of interest rate cuts by the Federal Reserve affected traders’ preferences for the currency.
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