Oil Prices Surge Above $70 as Geopolitical Tensions and Production Uncertainty Drive Market
Last week, oil prices soared by over 7%, surpassing the $70 mark for WTI crude. The surge was fueled by escalating tensions in the Russia-Ukraine conflict, with reports of more powerful weapons and new energy sanctions. Additionally, news of a 60-day ceasefire between Lebanon and Israel initially caused a pullback, but oil quickly regained momentum for several reasons.
Speculation is rife that President-elect Trump’s administration will pivot the IEA’s focus back to oil from renewables, a move that has bolstered oil prices. Rumors also circulated last week that OPEC+ may delay the rejection of voluntary production cuts by its largest members beyond established quotas at the upcoming December 1st meeting.
Weekly production and commercial inventory data have also provided support to oil prices. The average daily production last week stood at 13.2 million barrels, down from 13.4 the previous week and a high of 13.5 in the preceding four weeks. Furthermore, the latest Baker Hughes report indicated 479 active oil rigs, a figure that has seen minimal change over the past eight weeks.
Despite a third consecutive weekly increase in U.S. commercial oil inventories, the overall trend is downward. Current inventories are 3% lower than a year ago and remain near the lower end of the nine-year range, a pattern that has persisted since 2015.
On the flip side, economic weaknesses in the eurozone and China have tempered global energy demand, thereby keeping oil prices range-bound near the lower end of the spectrum observed over the past two years. The increased OPEC+ activity has prevented a significant drop in oil prices, with the threat of WTI falling below $70 and approaching $65 levels.
However, the technical outlook for oil prices is concerning, with the market struggling to break above key moving averages and showing signs of weakness. Historical data also point to the possibility of sharp declines in oil prices during the November-December period, as seen in previous years with internal OPEC disputes causing disruptions.
In summary, while geopolitical tensions and production uncertainties have propelled oil prices above $70, the market remains vulnerable to downside risks. Investors should closely monitor global economic developments and OPEC+ actions to gauge future price movements and make informed investment decisions.
By The FxPro Analyst Team
