Since market opening on Monday, November 18, Brent crude prices have climbed steadily. Starting the week at approximately USD 70.7 per barrel, prices rose to USD 71.5 per barrel by noon yesterday. However, in the afternoon, Brent crude surged by nearly USD 2 per barrel, reaching USD 73.5 per barrel, which is close to where we are currently trading.

This sharp price increase has been driven by supply disruptions at two major oil fields: Norway’s Johan Sverdrup and Kazakhstan’s Tengiz. The Brent benchmark is now continuing to trade above USD 73 per barrel as the market reacts to heightened concerns about short-term supply tightness.

Norway’s Johan Sverdrup field, Europe’s largest and one of the top 10 globally in terms of estimated recoverable reserves, temporarily halted production on Monday afternoon due to an onshore power outage. According to Equinor, the issue was quickly identified but resulted in a complete shutdown of the field. Restoration efforts are underway. With a production capacity of 755,000 barrels per day, Sverdrup accounts for approximately 36% of Norway’s total oil output, making it a critical player in the country’s production. The unexpected outage has significantly supported Brent prices as the market evaluates its impact on overall supply.

Adding to the bullish momentum, supply constraints at Kazakhstan’s Tengiz field have further intensified concerns. Tengiz, with a production capacity of around 700,000 barrels per day, has seen output cut by approximately 30% this month due to ongoing repairs, exceeding earlier estimates of a 20% reduction. Repairs are expected to conclude by November 23, but in the meantime, supply tightness persists, amplifying market vol.

On a broader scale, a pullback in the U.S. dollar yesterday (down 0.15%) provided additional tailwinds for crude prices, making oil more attractive to international buyers. However, over the past few weeks, Brent crude has alternated between gains and losses as market participants juggle multiple factors, including U.S. monetary policy, concerns over Chinese demand, and the evolving supply strategy of OPEC+.

The latter remains a critical factor, as unused production capacity within OPEC continues to exert downward pressure on prices. An acceleration in the global economy will be crucial to improving demand fundamentals.

Despite these short-term fluctuations, we see encouraging signs of a recovering global economy and remain moderately bullish. We are holding to our price forecast of USD 75 per barrel in 2025, followed by USD 87.5 in 2026.

Since market opening yesterday, Brent crude prices have returned close to the same level as 24 hours ago. However, before the release of the weekly U.S. petroleum status report at 17:00 CEST yesterday, we observed a brief spike, with prices reaching USD 73.2 per barrel. This morning, Brent is trading at USD 71.4 per barrel as the market searches for any bullish fundamentals amid ongoing concerns about demand growth and the potential for increased OPEC+ production in 2025, for which there currently appears to be limited capacity – a fact that OPEC+ is fully aware of, raising doubts about any such action.

It is also notable that the USD strengthened yesterday but retreated slightly this morning.

U.S. commercial crude oil inventories increased by 2.1 million barrels to 429.7 million barrels. Although this build brings inventories to about 4% below the five-year seasonal average, it contrasts with the earlier U.S. API data, which had indicated a decline of 0.8 million barrels. This discrepancy has added some downward pressure on prices.

On the other hand, gasoline inventories fell sharply by 4.4 million barrels, and distillate (diesel) inventories dropped by 1.4 million barrels, both now sitting around 4-5% below the five-year average. Total commercial petroleum inventories also saw a significant decline of 6.5 million barrels, helping to maintain some balance in the market.

Refinery inputs averaged 16.5 million barrels per day, an increase of 175,000 barrels per day from the previous week, with refineries operating at 91.4% capacity. Crude imports rose to 6.5 million barrels per day, an increase of 269,000 barrels per day.

Over the past four weeks, total products supplied averaged 20.8 million barrels per day, up 1.8% from the same period last year. Gasoline demand increased by 0.6%, while distillate (diesel) and jet fuel demand declined significantly by 4.0% and 4.6%, respectively, compared to the same period a year ago.

Overall, the report presents mixed signals but leans slightly bearish due to the increase in crude inventories and notably weaker demand for diesel and jet fuel. These factors somewhat overshadow the bullish aspects, such as the decline in gasoline inventories and higher refinery utilization.

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.