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 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!

Brent crude prices have maintained their upward momentum, rebounding from last week’s low of USD 70.7 per barrel, spurred by relief over limited Israeli retaliation toward Iran, which left energy infrastructure (both oil and nuclear) undamaged. Since that point, as projected, prices have risen by USD 4.6 per barrel in just seven days.

This momentum has been further fueled in the last two days by changes in market fundamentals. Reports confirming OPEC+ plans to delay its previously scheduled oil production increase, originally set for December, have contributed to the continued rise, pushing prices up to the current level of USD 75.2 per barrel.

Late last week, Brent prices were also influenced by Iranian rhetoric, with Iran pledging further retaliation. The latest WSJ report suggests that Iran may be planning a ”strong and complex” response against Israel, likely after the US election. The report also notes that Israel’s October 26 strike inflicted significant damage on Iran’s air defenses, heightening tensions. While the timing of any Iranian response remains speculative, further hostilities between Iran and Israel appear very predictable.

Despite looming geopolitical uncertainty and the potential for a heightened risk premium, the impact of current market fundamentals remains significant. To our surprise, OPEC+ has confirmed it will postpone its planned December production increase of 180,000 barrels per day.

However, this deferral doesn’t remove the target of adding a cumulative 2.2 million barrels by December 2025. OPEC+ will continue to monitor the market, increasing supply as soon as conditions favor it, which will likely keep substantial oil price gains in check over the coming year.