Why Is the Oil Price Down Today?
When Rigzone asked Tamas Varga, an analyst at PVM Oil Associates, why the oil price is down today, Varga told Rigzone the reason is twofold.
“The Israeli Prime Minister, according to the Washington Post, is considering hitting Iranian military, but not nuclear or oil targets,” Varga said.
“Secondly, the International Energy Agency (IEA) forecasts supply surplus for next year,” Varga added.
In a market analysis sent to Rigzone this morning, Chris Weston, Head of Research at Pepperstone, highlighted that crude was “sharply repricing geopolitical risk, with energy traders continuing to unwind hedges placed on the threat of Iranian oil supplies being affected in the process”.
“The market initially reacted to the reports that Israeli PM Netanyahu would concentrate his operations on Iranian military targets in late U.S. trade, with Brent hitting a low of $74.86,” he added.
“With the crude price failing to bounce through Asia, consolidation was the play, where we saw a tight range for much of trade, however, we’re now seeing sellers regain composure with price breaking through the U.S. lows, with a mix of stops being taken out, and momentum-focused traders working in line with the flows,” Weston continued.
In the analysis, Weston stated that the demand side of the equation also seems to be in play with OPEC projecting weaker demand forecasts. He added that, “if the HK50 and CSI300 are a voting mechanism on the Chinese fiscal measures, then heavy equity markets seen through cash trade are hardly inspiring the oil market either”.
In a separate market analysis sent to Rigzone on Monday, Samer Hasn, a Senior Market Analyst at XS.com, warned that “oil prices are set to post sharp losses of more than 1.5 percent at the start of this week’s trading for both major benchmarks, Brent and West Texas Intermediate”.
“Oil’s losses come as markets are left disappointed with China’s lack of detail on its upcoming support plans. Added to that is a sharper than expected slowdown in prices in China, indicating continued weak demand in September,” he added.
In that analysis, Hasn said the much-anticipated press conference held on Saturday by Chinese Finance Minister Lan Fo did not live up to expectations.
“Questions about the details and amount of the stimulus packages that are expected to help revive the economy were not answered according to Wall Street Journal, although the minister said they would be significant,” Hasn added.
“However, the Journal, citing economists, reported that the finance minister has already provided sufficient assurances about the effectiveness of the support to boost economic growth and that it may exceed the target of five percent this year,” Hasn continued.
In the analysis, Hasn also stated that the release of the September consumer and producer price indices fell short of expectations.
“The annual growth in consumer price inflation slowed to the lowest rate since last June at 0.4 percent, and producer prices continued their contraction that has extended since October 2022, this time at the fastest rate since last March at 2.8 percent,” Hasn said.
“The National Bureau of Statistics in China said that the monthly contraction in producer prices, which amounted to 0.6 percent, was due to the volatility of global commodity prices and insufficient domestic demand,” Hasn added.
The analyst highlighted in analysis that “the escalating geopolitical tensions in the Middle East may preserve the ability of crude to cut its losses”.
In a Rystad Energy oil market update sent to Rigzone by the Rystad team on Monday morning, Mukesh Sahdev, Global Head of Commodity Markets - Oil at Rystad, said, “China’s stimulus talk left investors wanting more”.
“Despite vague promises, the yuan’s decline and falling oil prices show skepticism about Beijing’s growth plans,” Sahdev added.
“While the central bank’s injection of one trillion yuan of liquidity seeks to reassure investors about the government’s commitment to a five percent GDP growth target, any support for oil prices is likely to be short-lived without clearer policy measures in the coming weeks during the National People’s Congress review,” Sahdev continued.
In a research note sent to Rigzone late Monday by the JPM Commodities Research team, analysts at J.P. Morgan said the estimated value of open interest across energy markets decreased by $0.2 billion week on week to around $623 billion.
“Crude oil (-$4.1 billion week on week) led in contract-based outflows which netted to -$2.5 billion week on week for the sector, with inflows into gasoline (+$1.7 billion week on week) slightly offsetting the losses,” the analysts said in the note.
“Our oil strategists maintain their view that Israel is likely to avoid an attack on Iran’s oil infrastructure, while an attempt to contain the situation in the Middle East is underway,” they added.
“The open interest value in natural gas markets declined by -$3.3 billion week on week to ~$123 billion, with contract-based inflows at +$1.2 billion week on week,” they continued.
“Our natural gas strategists revised down their 2025 price forecast to $3.50/MMBtu due to rising storage trajectories for next year, while maintaining their bullish call for 2025,” they went on to state.
A Stratas Advisors report sent to Rigzone by the Stratas team yesterday revealed that, for the upcoming week, the business is “expecting that oil prices will be relatively flat with a downward bias unless there is another military strike of note”.
In that report, Stratas warned that, “offsetting the geopolitical risk are the concerns associated with Saudi Arabia’s warning of plans to take back market share”.
“There are reports that Saudi Arabia will be bringing on substantial additional supply with the intention of collapsing the oil price,” the company added.
“We do not think this is the strategy that Saudi Arabia will ultimately follow because of the risks associated with fracturing OPEC+, especially when the sentiment of the oil traders remains relatively negative,” it noted.
Stratas highlighted in the report that Saudi Arabia did employ an aggressive strategy to regain market share in 2014, which it pointed out resulted in oil prices dropping below $40.
“While Saudi Arabia was successful in slowing down investments in U.S. shale, the strategy did not result in oil prices moving back to $100,” Stratas stated in the report.
“Saudi Arabia took a similar aggressive approach in 2020, which resulted in oil prices dropping even lower - and only stabilized when an agreement was reached between Saudi Arabia and Russia,” it added.
“While Saudia Arabia is frustrated by members of OPEC+ overproducing - including Russia, Iraq, and Kazakhstan - the supply/demand fundamentals are not nearly as dire as during 2014 and 2020,” it continued.
“Furthermore, the pending growth in non-OPEC supply is more moderate - especially in comparison to 2014,” the Stratas report went on to state.
To contact the author, email andreas.exarheas@rigzone.com
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