Weekly Oil Market Review: October 21-25, 2024

By Giulia Petroni

In the week of October 21-25, 2024, oil markets experienced modest gains amid rising concerns over geopolitical tensions in the Middle East. As traders navigated through fluctuating prices influenced by various macroeconomic factors, the focus remained on upcoming events that could further impact the oil landscape.

Overview of Oil Prices

As the week drew to a close, Brent crude, the international oil benchmark, was trading around $75 a barrel, while the U.S. oil gauge, West Texas Intermediate (WTI), hovered around $71 a barrel. Both benchmarks recorded increases of approximately 2% to 3% over the week. This uptick came after a period of significant volatility, driven by geopolitical risks and ongoing concerns regarding global oil demand. According to Ole Hansen, head of commodity strategy at Saxo, crude oil futures have entered a "nervous wait-and-see mode," with major risks keeping prices within a range.

Macro Economic Context

The macroeconomic landscape was relatively quiet this week, with traders looking ahead to critical events on the horizon. The U.S. presidential election scheduled for November 5 and the Federal Reserve’s policy meeting on November 6-7 are at the forefront of investors’ minds. Market expectations suggest that the Fed may implement a modest 25-basis-point reduction in borrowing costs, which could influence economic activity and, consequently, oil demand.

Additionally, investors are keenly awaiting clarity on China’s stimulus policies aimed at revitalizing its economy. Concerns over China’s demand outlook have been exacerbated by recent downgrades in global oil-demand growth estimates from both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC), marking the third consecutive reduction.

Geopolitical Risks

Geopolitical tensions, particularly in the Middle East, have been a significant factor influencing oil prices this week. U.S. and Israeli negotiators are set to reconvene for ceasefire discussions, but Israel’s escalating military actions and uncertainties surrounding Iran’s missile capabilities have left the oil market in a state of unease. Analysts at ING noted that the Brent options market reflects this tension, with call options becoming increasingly expensive compared to puts, as market participants seek protection against potential price spikes.

Supply and Demand Dynamics

The latest report from the Energy Information Administration (EIA) revealed a rise in commercial crude oil stockpiles, which increased by 5.5 million barrels to reach 426 million barrels for the week ending October 18. Gasoline stocks also saw a rise, climbing by 878,000 barrels to 213.6 million barrels. Typically, an increase in stockpiles signals softer demand; however, this week’s build was partly attributed to a rebound in crude imports following hurricane season disruptions. Analysts at Commerzbank Research commented that despite the rise in stocks, the report had minimal impact on prices.

Looking Ahead

As we move into the next week, several key macroeconomic indicators will be closely monitored. Investors will be particularly focused on U.S. gross domestic product (GDP) estimates for the third quarter, the Personal Consumption Expenditures Price Index (a crucial inflation gauge for the Fed), initial jobless claims, and unemployment data.

In addition, important indicators from China, including purchasing managers’ indices, are set to be released. Analysts from Commerzbank expressed cautious optimism, suggesting that sentiment indicators may have improved somewhat in October, although they remain skeptical about a significant turnaround.

In conclusion, the oil market is currently navigating a complex landscape shaped by geopolitical tensions, macroeconomic uncertainties, and evolving supply and demand dynamics. As traders prepare for the upcoming events, the focus will remain on how these factors will influence oil prices in the weeks to come.

For further insights and updates, feel free to reach out to Giulia Petroni at giulia.petroni@wsj.com.

(END) Dow Jones Newswires
10-25-24 1159ET