By Giulia Petroni
Here is a look at what happened in oil markets in the week of Nov. 11-15 and what the focus will be in the days to come.
OVERVIEW: Oil prices are headed for modest weekly losses, pressured by a stronger U.S. dollar and a gloomy demand outlook. Brent crude trades around $72 a barrel, while West Texas Intermediate is around $68 a barrel. Both benchmarks are down between 2% and 3% on the week after the dollar soared against a basket of other major currencies following the U.S. presidential election, making dollar-denominated oil more expensive. Meanwhile, a slowdown in demand growth in top crude importer China and prospects of a global supply surplus next year continue to drive a bearish sentiment in the market.
MACRO: Federal Reserve Chair Jerome Powell said in remarks this week that a strong economy, a solid job market and inflation above the 2% target mean there is no rush to lower interest rates. Investors expect the U.S. central bank to cut rates by 25 basis points at its next meeting in December and to slow down the pace of cuts after that. Higher rates for longer can weigh on fuel demand and strengthen the dollar, weighing on prices.
GEOPOLITICS: In the Middle East, tensions remain high as Israel expands its military campaign in southern Lebanon and continues its offensive in Gaza. Still, Israeli and American officials have expressed optimism over U.S. efforts for a ceasefire deal between Israel and Hezbollah.
Meanwhile, traders have been evaluating the potential impact of a second Trump presidency on oil markets. In the short run, the main risk would be stricter enforcement of sanctions against Iran, which would curb oil exports and likely prevent prices from falling further--an element that OPEC+ will have to take into consideration at its next meeting in December.
In the longer term, the market is weighing the possibility that the new administration will roll back some climate regulations and open more lands and waters to oil and gas drilling. "However, it will take some time before this is implemented," Commerzbank analysts said. "It is likely that the effects will not be seen until 2026."
SUPPLY AND DEMAND: It has been a busy week for oil markets, with all three major forecasters--the International Energy Agency, the Organization of the Petroleum Exporting Countries and the Energy Information Administration--releasing their monthly reports.
Meanwhile, investor disappointment after China failed to announce new stimulus measures to prop up the economy and lift oil demand have put significant pressure on prices, increasing concerns over prolonged softness in global energy consumption. The latest data also contributed to price weakness, showing that China's refinery throughput fell for the seventh month in a row in October.
The IEA warned the market faces a surplus of more than 1 million barrels a day next year, which could swell even further if OPEC+ decides to press ahead with supply hikes. The Paris-based agency lifted its forecast for this year's oil-demand growth but slightly trimmed next year's estimates. It also said China's demand growth in 2024 is expected to average just one-tenth of the 1.4 million barrels a day increase seen in 2023.
Earlier this week, OPEC cut its forecast for oil-demand growth for the fourth consecutive month, further trimming estimates for Chinese demand growth. The move came after the cartel and its allies delayed a planned output hike by another month amid market concerns over weaker global consumption and lower prices.
Meanwhile, the latest data from the Energy Information Administration showed commercial crude oil stockpiles rose by 2.1 million barrels to 429.7 million barrels in the week ended Nov. 8, while gasoline inventories dropped by 4.4 million barrels to 206.9 million barrels.
WHAT'S AHEAD: Next week won't be a busy one in terms of macro data. Concerns over prolonged softness in Chinese consumption will continue to dominate the market, likely overshadowing geopolitical risks. A key determinant of price action will also be OPEC+'s next policy move and the extent to which extensions of the group's voluntary output cuts will be sufficient to counterbalance robust supply growth from non-OPEC+ countries.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
11-15-24 1158ET
