By Giulia Petroni
Here's a look at what happened in oil markets in the week of Oct. 7-11 and what the focus will be in the days to come.
OVERVIEW: Oil prices are headed for a modest weekly gain, boosted by concerns of supply disruptions in the Middle East as markets await Israel's response to Iran's missile barrage, fearing it could target Iranian oil infrastructure. Brent crude, the international oil benchmark, trades at around $79 a barrel, while the U.S. oil gauge West Texas Intermediate is around $75 a barrel. Both benchmarks are up more than 1% on the week and almost 12% on the month, also supported by the impact of Hurricane Milton on U.S. demand and energy infrastructure. But sustaining a bullish price momentum has proven to be hard without additional catalysts, and further gains currently seem to be capped by global demand concerns and weakening consumption in China.
MACRO: The latest U.S. data showed producers' selling prices stayed flat in September, adding more evidence that inflation is cooling and reinforcing expectations that the Federal Reserve will cut interest rates by 25 basis points at its next meeting. The consumer price index, which shows what consumers pay for goods and services, rose 2.4% on year in September, the smallest 12-month increase since February 2021.
Both figures feed into the personal consumption expenditures price index, which is seen as the Fed's preferred measure of inflation. Meanwhile, U.S. jobless claims surged to the highest level in more than a year. However, this was likely as a result of Hurricane Helene and the Boeing machinist strike rather than a broader softening in the labor market, according to economists.
GEOPOLITICAL RISKS: Markets remain on edge, waiting to see whether Israel will target Iranian oil facilities. According to analysts, an attack on Iran's midstream and upstream oil assets would have a significant effect on global markets, hitting Iran's ability to export oil and potentially pushing prices to $90 a barrel next year. An even more extreme scenario would materialize if the conflict disrupts flows through the Strait of Hormuz and Persian Gulf.
"Price developments will depend heavily on developments in the Middle East," Commerzbank Research's Barbara Lambrecht says in a note to clients. "Should Israel spare Iran's oil and energy infrastructure in a possible retaliation strike, the oil market would likely react with relief and prices would fall somewhat further."
SUPPLY AND DEMAND: Weekly inventory data from the Energy Information Administration showed U.S. crude oil stockpiles rose for a second consecutive week as refineries reduced their capacity use. Commercial crude oil stocks rose by 5.8 million barrels to 422.7 million barrels in the week ended Oct. 4, against expectations of 1.3 million barrel rise. The EIA also lowered its demand forecast for next year, citing weakening economic activity in China and North America.
Meanwhile, Hurricane Milton disrupted fuel supply and caused power outages throughout Florida, providing underlying support to oil prices this week.
WHAT'S AHEAD: The energy calendar will be quite busy next week, with The Organization of the Petroleum Exporting Countries and The International Energy Agency releasing their monthly market reports on Monday and Tuesday, respectively.
Traders are also waiting to get additional cues on global demand trends as China prepares to unveil more details about its fiscal stimulus plans on Saturday and release a series of trade and economic indicators next week.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
10-11-24 1239ET