By Oil prices are expected to trade in their current range this week, provided geopolitical tensions do not escalate further, experts said.
Several factors have been influencing the oil market over the last five sessions as the Russia and Ukraine conflict escalated.
On the supply side, concerns over a possible glut in the coming months have been keeping prices from rising sharply.
Moreover, a sluggish economic recovery is also dampening sentiments in the oil market.
“(This week), the price is also likely to remain within this ($70-$75 per barrel) trading range,” Barbara Lambrecht, commodity analyst at Commerzbank AG, said.
In the absence of major publications, and provided that the geopolitical situation does not change significantly, the focus is likely to shift to the OPEC+ meeting on December 1.
On Monday, oil prices were pressurised by reports suggesting Israel and Hezbollah could agree on a 60-day ceasefire, brokered by the US.
Brent and West Texas Intermediate crude oil benchmarks have risen sharply last week. Both price benchmarks gained 6% last week, riding on geopolitical tensions between Russia and Ukraine.
Intensifying tensions add significant risk premium to oil
In the last seven days, both Russia and Ukraine have stepped up attacks on each other.
Tensions have escalated to levels not seen since Russia’s invasion of Ukraine in early 2022.
The conflict spiraled earlier this week when Ukraine was allowed to use weapons made by the US and Britain to strike deep into Russian territory.
Russian President Vladimir Putin had even lowered the bar for a nuclear attack and a global conflict.
Against such a backdrop, oil prices have jumped, and the escalating conflict has created a floor for crude.
“This raises concerns that energy supplies from Russia could be interrupted if Ukraine targets refineries or export terminals in Russia, which has already happened in the past,” Carsten Fritsch, aan nalyst at Commerzbank, said in a report.
In June, Ukraine had targeted three Russian refineries, which had affected their processing capacity.
Russia remains one of the top three exporters of oil even with heavy sanctions on its exports by the Western powers.
Focus on OPEC+ meeting
Even as geopolitical tensions escalate, the market will remain cautious about poor crude demand, globally.
This makes the Organization of the Petroleum Exporting Countries and allies’ decision on output even trickier than it already is.
According to experts, traders will focus more on the prospect of OPEC+ increasing output from January, if the conflict in Ukraine does not escalate further.
OPEC+ is scheduled to hold its ministerial meeting on December 1 to decide whether it should unwind some of its voluntary production cuts from January.
The cartel had already extended its steep voluntary cuts four times this year. The cuts were set to expire in June initially when those were extended till the end of September to combat lower oil prices.
The group then extended these cuts thrice since early September. This indicates a weak demand situation, especially in China, the top importer of the fuel.
Lambrecht said:
Initial surveys in the run-up to the meeting will probably show that the majority of respondents expect the increase in production to be postponed again.
“We also assume that the members of the extended cartel will not turn up the oil tap for the time being, as otherwise there would be a massive oversupply looming next year and the cartel would risk a significant drop in oil prices.”
Technical forecast for next week
At the time of writing, WTI crude prices were 1% lower and were back above $70.61 per barrel.
According to Fxempire analyst Christopher Lewis, the $65 per barrel mark is a massive support for the WTI prices.
Lewis said in a report:
The $72.50 level above is an area that I think a lot of people will pay close attention to.
He said that if prices break above the $72.50 per barrel mark, then the US benchmark could potentially try and move towards $80 per barrel, which is a psychologically crucial level.
For the Brent market, the crucial barrier remains at $80 per barrel.
“Over the last couple of years, we have been bouncing around between $70 and $90, and bouncing from $70 does make a certain amount of sense, considering that it would be oversold as it were,” Lewis added.
At the time of writing, the WTI price on the New York Mercantile Exchange was $70.61 per barrel, while Brent on the Intercontinental Exchange was around $74 a barrel, both down around 0.9% from the previous close.
This week, investors will also monitor the demand and inventory situation in the US.
ANZ Research has recently said despite unattractive margins, the refinery utilization rate in the US was above 90% for the last couple of weeks.
US oil processing has increased to a seasonal high of 16.5 million barrels per day. “US combined oil products demand (gasoline, diesel, and jet fuel) is showing year-on-year growth,” the agency added.
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