The Week in Oil : Israel-Hezbollah Ceasefire Deal, OPEC+ Output Policy in Focus

By Giulia Petroni

Here's a look at what happened in oil markets in the week of Nov. 25-29 and what the focus will be on in the days to come.

OVERVIEW: Oil prices have remained broadly rangebound this week and are now headed for weekly losses of roughly 3%, pressured by prospects of a global supply surplus next year and easing geopolitical risks in the Middle East after Israel and Hezbollah reached a ceasefire deal. Brent crude trades just shy of $73 a barrel, while West Texas Intermediate is at around $69 a barrel.

MACRO: The Federal Reserve's meeting minutes this week revealed officials discussed potentially slowing down or pausing interest-rate cuts if progress on lowering inflation stalled out. Meanwhile, the U.S. central bank's preferred inflation gauge ticked back up to 2.8% on a core basis last month, signaling that even though the trajectory has improved, the price growth rate is still well above the 2% target.

Meanwhile, President-elect Donald Trump's pledge to impose 25% tariffs on Canadian and Mexican imports injected fresh volatility into the commodities complex. The move raised concerns that U.S. refiners could be significantly hurt if crude oil were included in the plan, given that the two countries are top sources of U.S. crude imports.

GEOPOLITICAL RISKS: The ceasefire agreement between Israel and Hezbollah dominated news headlines this week, as the deal is set to end more than a year of fighting across the Israeli-Lebanese border and reduce the risk of supply disruptions in the region. Markets are now focused on the implementation of the agreement and how it will affect Israel's military operations in Gaza and the conflict with Iran.

Tensions on the eastern European front remain high after two weeks of dramatic escalation, fueling concerns over oil-and-gas flow disruptions after Russia struck Ukraine's energy infrastructure again.

The effects of a second Trump term on the geopolitical landscape are still uncertain, with traders assessing various scenarios that include tighter sanctions against Iran, a fresh batch of trade tariffs and a plan to end the war in Ukraine.

SUPPLY AND DEMAND: Concerns over softer demand trends and projections of an oversupplied market next year are still putting considerable pressure on prices. Analysts now wait to see if the Organization of the Petroleum Exporting Countries and its allies will opt to further delay their planned output hike after postponing their Sunday meeting to Dec. 5.

Meanwhile, the latest data from the Energy Information Administration showed U.S. crude oil stockpiles fell by 1.8 million last week, while gasoline inventories rose by 3.3 million barrels against expectations of a 600,000-barrel fall ahead of holiday travel.

WHAT'S AHEAD: Traders' main focus next will be OPEC+'s production policy meeting on Thursday. The cartel and its allies are widely expected to further delay their planned oil production hike, with some analysts saying the January start date could be pushed to February, and others saying that it could be postponed by at least three months. Still, a rollover of existing output cuts won't be sufficient to avert the projected production glut next year, according to market watchers.

Write to Giulia Petroni at [e-mail]

(END) Dow Jones Newswires

11-29-24 1253ET