KUALA LUMPUR: Analysts are advising caution as the oil market is expected to remain volatile in the near term.
Oil prices had a volatile start to the week, dropping as low as US$75 on Monday (July 5), the lowest price since December 2023, before rebounding later in the day.
At the time of writing, Brent added 0.27 per cent to US$76.69 per barrel, while West Texas Intermediate advanced 0.37 per cent to US$73.47 per barrel.
Prices plunged last week as fears of a recession in the United States gathered pace and previously bullish investors sold their petroleum positions.
However, the possibility of supply disruptions in the Middle East is helping to keep prices from falling off a cliff.
SPI Asset Management managing partner Stephen Innes said that despite numerous tensions rattling the proverbial hornet’s nest, such as the Houthi attacks on oil supply chains, there has not been a major disruption to oil production.
"Given Saudi Arabia’s significant regional influence, this could well be by design. Thus, the oil market’s seesaw might continue. Given the US election risk, we can only look as far as November.
"However, either of the outcomes is lose-lose for oil. The see-saw is mainly the Middle East political risk. Without that, oil prices could be US$3.00 lower,” he told Bernama.
The US presidential election will be on November 5, and it could have an impact on the future of the US oil and gas industries, with potential shifts in policy and regulatory frameworks.
Recent escalations in the Middle East, including the killing of Hezbollah and Hamas leaders, have heightened fears of a broader regional conflict.
The death of Hamas leader Ismail Haniyeh and threats from Iran suggest a potential for significant escalation.
This heightened regional tension could have broader geopolitical implications, including potential impacts on global oil markets.
In this context, Venezuelan President Nicolas Maduro’s victory in the election with 51 per cent of the vote -- despite earlier polls favouring rival Edmundo Gonzalez -- adds another layer of complexity.
His extended presidency could influence Venezuela’s oil production and, consequently, the global oil supply, further intersecting with the volatile dynamics in the Middle East.
While prevailing sentiment is decisively bearish for now due to demand concerns, geopolitical risks in the Middle East and supply concerns from Venezuela -- with Maduro extending his presidency -- could influence market dynamics, said Rystad Energy senior analyst Svetlana Tretyakova.
"In the coming weeks, potential US Federal Reserve rate cuts would help further stimulate the US economy, and China might implement more proactive economic support measures and stimulus,” she said in a research note on Tuesday.
On whether OPEC+ reevaluate production cuts as Brent crude prices falter, BMI head of oil and gas Joseph Gatdula said the organisation had communicated that market conditions will be considered when implementing the planned increase in output outlined in their June 2024 meeting.
"Should crude prices remain weak, this would raise the risk that production cuts may remain in play longer than planned,” he told Bernama.
Gatdula expects the current weaknesses in the oil market could persist as many of the bullish factors have been minimised by the weak market conditions for demand.
"On the bullish side, we note supply disruption (output from key gulf states or interruption of tanker traffic in the Strait of Hormuz) being the main factor for a reversal from the recent downtrends.
"Any escalation of the conflict in Israel raises the prospect of higher oil prices, but economic headwinds will counter these,” he added.
BMI’s near-term view is that oil prices are set to rebound from the current levels, closer to the US$80 per barrel level, mainly due to the oversold nature of the latest downturn in crude prices as well as stronger evidence for rate cuts in the US.
"This should spur new investment and economic growth supporting a stronger crude demand growth narrative,” Gatdula noted.
The possibility of a supply surplus starting later this year is being considered if the OPEC+ countries proceed with their plan to start unwinding some of their voluntary cuts, he said.
There seems to be a growing expectation of a supply surplus later this year and into 2025, said Gatdula, adding that peak summer demand in key markets is expected to be lower than previously anticipated.
He highlighted that the recent increases in fuel and crude stocks, or in some cases steady levels, were in contrast with expectations of drawdowns in stocks.
"The resilient stocks of crude and fuels indicate that demand is failing to keep pace with supply.
"This could further add to inventories should OPEC+ continue with their proposed production increases,” said Gatdula. - Bernama
