Oil Prices Steady After Significant Decline

In a market analysis sent to Rigzone on Tuesday, Christopher Tahir, a senior market strategist at Exness, said oil prices steadied in early trading following a significant decline in the previous session as traders assessed the potential for a ceasefire in the Middle East.

“The earlier selloff was triggered by reports indicating that the belligerents in the conflict could reach an agreement, alleviating concerns over potential disruptions to Middle Eastern oil supply,” Tahir said in the analysis.

“As fears of supply disruptions ease, the market could see a more bearish outlook, although volatility and some risks could remain if the geopolitical situation changes,” he added.

The strategist noted in the analysis that, at the same time, OPEC+ could consider maintaining its current production cuts in response to ongoing concerns about weak global demand for oil.

“In this regard, traders could closely monitor the organization’s next meeting for any changes in production policy,” Tahir said.

“Furthermore, with the potential for increased U.S. oil production, which has remained near record levels in recent years, the market could anticipate additional supply growth,” Tahir warned.

“Considering the prevailing global demand-supply imbalance, along with geopolitical developments and policy risks, the medium-term outlook for crude could remain bearish, driven by signs of weaker demand and the likelihood of sustained production increases,” the strategist added.

In a separate market analysis sent to Rigzone today, Michael Brown, a senior research strategist at Pepperstone, flagged “weakness in the commodities space” yesterday.

“Despite a softer USD, there was notable weakness in the commodities space, with both gold and crude (both Brent and WTI) losing around three percent on the day [Monday], in an apparent unwind of the increased geopolitical risk premium priced into both prior to the weekend,” Brown said in the analysis.

In another market analysis sent to Rigzone earlier today, Antonio Di Giacomo, a senior market analyst at XS.com, said the price of WTI crude oil saw a notable drop on Monday, “falling by more than $2.00, representing a decline of over 2.50 percent, closing at around $69.00 per barrel”.

“Reports suggesting a potential ceasefire agreement between Israel and Lebanon may have primarily influenced this drop,” he added.

“Although the markets were affected by these rumors, it is important to highlight that there were no disruptions in oil supply due to the conflict, meaning the global supply-demand balance should not have been altered,” Di Giacomo continued.

In the analysis, the senior market analyst highlighted that the decline in WTI reflects how energy markets respond to expectations of changes in geopolitical risks.

“Investors, sensitive to any potential disruption in crude oil supply security, quickly react to news suggesting a de-escalation of international tensions. In this case, the possibility of a ceasefire reduced the risk premium associated with oil, leading to a price drop,” Di Giacomo said.

“This behavior in oil prices is also framed within a broader context of fluctuations driven by international conflicts. Although the conflict between Israel and Lebanon had not directly disrupted supply, the perception of reduced geopolitical risks alleviated the uncertainty, pushing higher prices,” he added.

“It is a clear example of how external factors can influence energy markets beyond the fundamental conditions of supply and demand,” he went on to state. 

Di Giacomo highlighted in the analysis that, in contrast, last week, the price of WTI “experienced a sharp rebound, driven by tensions in Ukraine”.

“These conflicts had raised concerns over the risk of supply disruptions, which led to a spike in crude oil prices, reaching the highest levels since early November,” he said.

“Oil price fluctuations reflect market dynamics and the emotional responses and expectations of investors in the face of global uncertainty,” he pointed out.

“In this context, it is evident that the oil market is highly sensitive to changes in the geopolitical landscape. Crude oil prices are often more a response to investors’ expectations than actual events,” he continued.

In the analysis, Di Giacomo also warned that this week’s drop could be temporary if international tensions rise again, “underscoring the inherent volatility in commodity markets”.

To contact the author, email andreas.exarheas@rigzone.com