The oil markets were subject to a significant rally this week amid bearish sentiment, as supply disruptions, central bank policies, and geopolitical tensions played significant roles in shaping price movements. This recap covers key events, price fluctuations, and market sentiment for the week of September 16th to 20th, 2024.
Price Movements
Brent Crude & WTI Performance:
- Brent Crude: Brent opened on Monday at $72.09 per barrel and closed the week at $74.49 on Friday, representing a significant rebound. Overall, Brent rose by 3.3% during the week.
- West Texas Intermediate (WTI): WTI opened at $69.20 per barrel on Monday and closed the week at $71.00, reflecting a 2.6% increase.
- Weekly Summary: Both benchmarks saw price recoveries, driven by a mix of supply disruptions and speculative market activity following a rough start to the month. By Friday, Brent and WTI had regained most of the ground lost earlier in the quarter.
Key Market Drivers
- Supply Disruptions Due to Hurricane Francine:
- Early in the week, Hurricane Francine continued to disrupt U.S. oil production in the Gulf of Mexico, with around 100,000 barrels per day (bpd) remaining offline as of Tuesday. This supported oil prices, with WTI rising above $71 per barrel by Tuesday, while Brent hit $73.09 per barrel.
- By Thursday, as the storm downgraded to a tropical depression, around 730,000 bpd of production remained shut in. However, as refineries and oil facilities resumed operations by Friday, prices remained supported by ongoing supply concerns.
- Federal Reserve Rate Cut Speculation:
- The U.S. Federal Reserve was widely expected to cut interest rates this week for the first time in 4 years, a move that raised optimism about potential demand growth for oil. Although the huge rate cut (50bps) was seen as slightly supportive, the oil market’s response remained muted, as the rate cut’s impact was considered priced in.
- China’s Weak Demand Outlook:
- China’s slowing demand continued to weigh on the oil markets. Industrial consumption in China, the world’s largest crude importer, remained weak due to economic deceleration and a rapid shift toward electric vehicles. OPEC+’s lowered demand growth estimates further concerns, contributing to earlier price declines in the quarter.
Market Sentiment and Speculation
- Speculative Activity:
- On Wednesday, the price drop from earlier in the month spurred significant activity in the derivatives market. Industrial consumers, including airlines and shipping companies, jumped to hedge against future price spikes by taking long positions in Brent. This resulted in the third-largest jump in long positions on record, as swap dealers took advantage of the lower prices.
- Hedge funds, meanwhile, heavily sold petroleum futures and options, contributing to bearish sentiment. For the first time since 2011, money managers held a net short position in Brent, signalling significant scepticism about the near-term outlook for oil prices.
- Geopolitical Tensions in the Middle East:
- Geopolitical risks re-emerged late in the week as tensions between Israel and Hezbollah in Lebanon escalated. This raised concerns about potential supply disruptions in the Middle East, a key oil-producing region. A broader conflict between the two could involve Iran, an OPEC member, increasing the risk of disruptions to middle east crude supply.
Inventory Data
- U.S. Crude Oil Inventories:
- U.S. crude oil inventory fell by 1.6 million barrels for the week ending September 13th, according to the EIA. However, gasoline inventories rose slightly by 100,000 barrels, reflecting weaker-than-expected consumption in the U.S.
Looking Ahead
- OPEC+ Production Increase in December:
- Looking ahead, the market remains cautious of OPEC+’s plans to increase production in December. The group postponed an output increase earlier this year but is expected to return 2.2 million bpd of supply to the market through the end of 2025. Market analysts will continue to monitor China’s demand, Fed rate decisions, and potential disruptions from geopolitical risks in the Middle East.
- Continued Market Uncertainty:
- Despite the recent price recovery, concerns about oversupply and reduced demand from China remain. The global economy’s resilience, particularly in the U.S and OPEC+’s ability to manage production cuts at lower price levels will be critical in shaping oil prices in the months ahead.
Conclusion
The week of September 16th to 20th saw oil prices recover from previous lows, driven by supply disruptions from Hurricane Francine and optimism around U.S. economic policy. However, persistent concerns about Chinese demand, geopolitical tensions, and potential oversupply from OPEC+ kept the market on edge. As the oil market heads into the final quarter of 2024, the outlook remains uncertain, with both supply and demand factors continuing to influence price movements.