Since the market close on Monday, November 11, Brent crude prices have stabilized around USD 72 per barrel, after briefly dipping to a monthly low of USD 70.7 per barrel yesterday afternoon. The momentum has been mixed, oscillating between bearish and cautious optimism. This morning, Brent is trading at USD 71.9 per barrel as the market adopts a “wait and see” stance. The continued strength of the US dollar is exerting downward pressure on commodities overall, while ongoing concerns about demand growth are weighing on the outlook for crude.

As we noted in Tuesday’s crude oil comment, there has been an unusual silence from Iran, leading to a significant reduction in the geopolitical risk premium. According to the Washington Post, Israel has initiated cease-fire negotiations with Lebanon, influenced by the shifting political landscape following Trump’s potential return to the White House. As a result, the market is currently pricing in a reduced risk of further major escalations in the Middle East. However, while the geopolitical risk premium of around USD 4-5 per barrel remains in the background, it has been temporarily sidelined but could quickly resurface if tensions escalate.

The EIA reports that India has now become the primary source of oil demand growth in Asia, as China’s consumption weakens due to its economic slowdown and rising electric vehicle sales. This highlights growing concerns over China’s diminishing role in the global oil market.

From a fundamental perspective, we expect Brent crude to remain well above USD 70 per barrel in the near term, but the outlook hinges largely on the upcoming OPEC+ meeting in early December. So far, the cartel, led by Saudi Arabia and Russia, has twice postponed its plans to increase production this year. This decision was made in response to weakening demand from China and increasing US oil supplies, which have dampened market sentiment. The cartel now plans to implement the first in a series of monthly hikes starting in January 2025, after originally planning them for October. Given the current supply dynamics, there appears to be limited room for additional OPEC volumes at this time, and the situation will likely be reassessed at their December 1st meeting.

The latest report from the US API showed a decline in US crude inventories of 0.8 million barrels last week, with stockpiles at the Cushing, Oklahoma hub falling by a substantial 1.9 million barrels. The “official” figures from the US DOE are expected to be released today at 16:30 CEST.

In conclusion, over the past month, global crude oil prices have fluctuated between gains and losses as market participants weigh US monetary policy (particularly in light of the election), concerns over Chinese demand, and the evolving supply strategy of OPEC+. The coming weeks will be critical in shaping the near-term outlook for the oil market.

Since the market opened on Monday, November 11, Brent crude prices have declined sharply, dropping nearly USD 2.2 per barrel in just over a day. The positive momentum seen in late October and early November has largely dissipated, with Brent now trading at USD 71.9 per barrel.

Several factors have contributed to the recent price decline. Most notably, the continued strengthening of the U.S. dollar remains a key driver, as it gained further overnight. Meanwhile, U.S. government bond yields showed mixed movements: the 2-year yield rose, while the 10-year yield edged slightly lower, indicating larger uncertainty.

Adding to the downward pressure is ongoing concern over weak Chinese crude demand. The market reacted negatively to the absence of a consumer-focused stimulus package, which has led to persistent pricing in of subdued demand from China – the world’s largest crude importer and second-largest crude consumer. However, we anticipate that China recognizes the significance of the situation, and a substantial stimulus package is imminent once the country emerges from its current balance sheet recession: where businesses and households are currently prioritizing debt reduction over spending and investment, limiting immediate economic recovery.

Lastly, the geopolitical risk premium appears to be fading due to the current silence from Iran. As we have highlighted previously, when a “scheduled” retaliatory strike does not materialize quickly, it reduces any built-in price premium. With no visible retaliation from Iran yesterday, and likely none today or tomorrow, the market is pricing in diminished geopolitical risk. Furthermore, the outcome of the U.S. with a Trump victory may have altered the dynamics of the conflict entirely. It is plausible that Iran will proceed cautiously, anticipating a harsh response (read sanctions) from the U.S. should tensions escalate further.

Looking ahead, the market will be closely monitoring key reports this week: the EIA’s Weekly Petroleum Status Report on Wednesday and the IEA’s Oil Market Report on Thursday.

In summary, we believe that while the demand outlook will eventually stabilize, the strong oil supply continues to act as a suppressing force on prices. Given the current supply environment, there appears to be little room for additional OPEC volumes at this time, a situation the cartel will likely assess continuously on a monthly basis going forward.

With this context, we maintain moderately bullish for next year and continue to see an average Brent price of USD 75 per barrel.

Since last Friday’s close at USD 72.9 per barrel, Brent crude prices have seen an overall increase throughout the week, sustaining the upward momentum established in late October. However, trading yesterday was marked by significant volatility, including a sharp sell-off during the early morning and afternoon (CEST).

Global financial markets reacted predictably to Donald Trump’s victory, with US rates rising, the USD strengthening, and equities rallying (S&P 500 +2.5%, Dow Jones +3.6%, and Nasdaq +3.0%). In contrast, European equities fell (Euro Stoxx 50 -1.4% and OMX -0.9%), and rates were pushed lower.

The steep appreciation of the USD was a primary driver behind the substantial crude sell-off yesterday. Additionally, the market initially viewed Trump’s victory as potentially negative for global economic growth, with concerns over increased protectionism and reduced global trade, which could weigh on global oil demand.

On the other hand, Trump’s leadership may lead to tougher sanctions on Iran and Venezuela, potentially reducing their production and exports of crude oil to the global market. This could limit the downside risk for oil prices, although it’s unlikely to drive a substantial price increase on its own. Trump’s support for Israel’s defense against Iran could also raise the risk of further regional conflict, which might threaten Iranian crude supplies to a larger degree.

In the longer term, US policies under Trump could encourage further growth in domestic crude production, which reached a record high of 13.4 million barrels per day (mb/d) in August. Data released in late October showed that US crude production rose by 195,000 barrels per day (kb/d) to 13.4 mb/d, while US NGLs increased by 135 kb/d to 7.03 mb/d. When combining US crude, NGLs, biofuels, refinery gains, and adjustments, total US liquid production likely reached 23.13 mb/d in August. With US liquids demand at 20.4 mb/d, this results in a net export of 2.7 mb/d, complicating OPEC+’s plans for production increases.

Yesterday evening, crude prices rebounded significantly from the morning sell-off, reaching the current level of USD 75 per barrel. A minor pullback in the USD supported this recovery, but more importantly, the market is now weighing potential supply risks from the US election outcome and an impending Gulf of Mexico hurricane against increased US inventories and uncertainties around Chinese demand.

China’s oil imports declined again last month, highlighting continued soft demand. Stimulus measures are anticipated soon, with the legislature’s standing committee meeting this week. According to Chinese customs data, crude imports fell about 2% month-over-month to 44.7 million tons in October.

Hurricane Rafael has passed through Cuba and is expected to weaken as it moves toward the US coast. However, Bloomberg reports that approximately 1.55 mb/d of Gulf of Mexico production is now estimated to be impacted, down slightly from 1.6 mb/d. The Bureau of Safety and Environmental Enforcement (BSEE) reported yesterday that 304,418 barrels per day (or 17.4% of oil production) in the US Gulf has already been shut in – thus supporting prices to the upside.

Data from the US DOE yesterday showed a larger-than-expected increase in commercial crude inventories (excl. SPR), which rose by 2.15 million barrels from the previous week to reach 427.7 million barrels (see page 12 attached). Despite this increase, inventories remain about 5% below the five-year average for this time of year.

Total gasoline inventories rose by 0.4 million barrels and are approximately 2% below the five-year average, while distillate (diesel) inventories increased by 2.95 million barrels, remaining 6% below the five-year average.

Although crude inventories rose more than anticipated, signaling a bearish trend, total commercial petroleum inventories (crude and refined products) decreased by 1.1 million barrels last week, indicating that market conditions remain relatively tight in the short term!