The global oil market showed a strong performance this week, influenced by ongoing Middle Eastern conflicts and the upcoming US presidential election. Both Brent Crude and West Texas Intermediate (WTI) futures saw substantial gains, with Brent oil rising by 4.09% and WTI increasing by 3.7%. These increases reflect investors' heightened concern over potential risks, particularly relating to the Israel-Lebanon conflict, Iran's possible reactions, and election results.
On Friday, crude oil futures prices continued their ascent. December-delivery WTI crude futures rose by $1.59, or 2.26%, closing at $71.78 per barrel, with a slight retreat to $71.69 by the time of reporting. Similarly, Brent crude futures for December gained $1.67, or 2.25%, closing at $76.05 per barrel. This rise reinforces the strong market performance, setting the stage for consecutive weekly gains.
Throughout the week, Brent and WTI experienced significant volatility. Prices climbed on Monday and Tuesday, only to dip slightly on Wednesday and Thursday, predominantly due to shifts in Middle Eastern tensions. Investors remain focused on whether Israel will take further military actions against Iran or Lebanon, especially amidst ongoing ceasefire negotiations and humanitarian aid discussions. Additionally, with the US election on the horizon, the market is evaluating potential policy changes that could impact the energy sector.
Geopolitical risks have been the primary driver for the recent surge in oil prices. The conflict between Israel and Lebanon escalated, with reports of casualties from Israeli airstrikes. Concurrently, US Secretary of State Antony Blinken urged diplomatic resolutions to conflicts involving Israel and Iran's ally, Hezbollah. The US and Israeli officials are set to resume ceasefire talks, potentially influencing future oil prices.
The uncertainty around the US election adds to market volatility. Analyst Phil Flynn from Price Futures Group mentioned that the market is in a wait-and-see mode, anticipating clearer directions on issues like the Israel conflict, the war, and the US election. Investors are cautiously aware of potential intense fluctuations, which has tempered immediate demand for higher oil prices.
Economic data from the US, Japan, and the UK's fiscal policy, with their forthcoming rate decisions, will play crucial roles in global oil market trends in the coming weeks. These central bank policies are expected to directly affect dollar fluctuations, indirectly impacting oil prices. Consequently, global investors are buying dollars, betting on increased volatility.
Analysts from Matador Economics emphasize that geopolitical factors are currently dominating the oil market, while the US election results could significantly impact the sector. Tim Snyder, Chief Economist at Matador Economics, notes that Middle Eastern tensions have bolstered investor confidence, yet post-election policy directions could directly influence oil supply and demand fundamentals, suggesting possible market adjustments.
Goldman Sachs anticipates Brent crude prices to stay within the $70 to $85 range through 2025, citing Middle Eastern supply concerns as more influential than China's economic stimulus. Despite optimism about China's demand prospects, Goldman Sachs views OPEC+ production cut compliance as a more critical market focus.
Similarly, a report from Bank of America forecasts Brent crude prices averaging $75 per barrel by 2025, indicating that OPEC+ will likely maintain their production cuts next year. Analysts widely believe that oil prices will oscillate between geopolitical tensions and OPEC+ actions, with Middle Eastern risks continuing to support prices.
In conclusion, international oil prices have risen this week due to geopolitical risks and investor caution ahead of the US election. Developments in the Middle East and US election outcomes will be pivotal in the short-term, with increased dollar volatility possibly leading to further price adjustments in the oil market. Analysts remain optimistic about Middle Eastern tensions supporting oil prices but caution about potential market fluctuations.
Investors should closely monitor global economic shifts, geopolitical dynamics, and OPEC+ policy adjustments in the coming weeks to respond to potential market risks and opportunities effectively.
