The Week in Oil : U.S. Election, Demand Concerns Take Center Stage

By Giulia Petroni

Here's a look at what happened in oil markets in the week of Nov. 4-8 and what the focus will be in the days to come.

OVERVIEW: Oil prices are headed for modest weekly gains as traders weigh what the impending return of Donald Trump as U.S. president could bring to the market. Brent crude, the international oil benchmark, trades around $73 a barrel, while the U.S. oil gauge West Texas Intermediate is around $70 a barrel. The benchmarks plunged as much as 3% on Wednesday, triggered by a surge in the U.S. dollar on news that Trump had won the U.S. election. Prices have then recouped some losses as markets digested the news, but are still pressured by persistent concerns over the demand outlook in China and prospects of an oversupplied market next year.

MACRO: Global headlines have been dominated by the U.S. presidential election, with investors evaluating the possible scenarios that a second Trump term brings to oil markets--from increased drilling to higher trade tariffs and potentially stricter enforcement of sanctions against Iran.

The Federal Reserve unsurprisingly cut interest rates by a quarter point, the second reduction this year. But Trump's return to the White House brings uncertainty surrounding what comes next amid prospects of higher inflation and national debt levels.

Meanwhile, in China, the top legislative body approved a $1.4 trillion package to help local governments refinance their debts, but disappointed investors by not revealing new fiscal stimulus to revive the country's struggling economy.

GEOPOLITICAL RISKS: Tensions in the Middle East remain high, with markets waiting to see the extent of Iran's potential counterattack against Israel. However, price increases in the immediate aftermath of attacks in the past weeks have been rather limited as bearish sentiment over market fundamentals continues to dominate, according to analysts. Investors will now be increasingly focusing on what a second Trump term means for the geopolitical landscape and consequently for oil prices, especially when it comes to the Middle East conflict and the war between Russia and Ukraine.

SUPPLY AND DEMAND: Concerns over global demand and supply trends next year are back into focus, with traders saying the main driver of price action next year is expected to be OPEC+ policy.

The Organization of the Petroleum Exporting countries and its allies last week agreed to further extend voluntary production cuts of 2.2 million barrels a day until the end of December. But many analysts say that won't be enough, and the group will have to further delay its planned output hike again in December in order to curb the anticipated global supply surplus.

Meanwhile, top oil exporter Saudi Arabia cut prices for all crude grades it sells to Asia. Customers in Asia will now have to pay a premium of $1.70 a barrel for December loadings of Arab Light crude compared to the Oman/Dubai benchmark, 50 cents less than in November.

In the U.S., Hurricane Rafael forced the shut in of around 22% of oil production and 9% of natural gas production, raising supply fears over the week. But concerns started subsiding after the National Hurricane Center said Rafael is forecast to weaken through the weekend.

According to the latest data from the Energy Information Administration, U.S. crude oil inventories rose last week as imports grew. Commercial crude oil stocks rose by 2.1 million barrels to 427.7 million barrels in the week ended Nov. 1, while gasoline inventories were up by 412,000 barrels at 211.3 million barrels.

In China, crude oil imports fell by 9% on-year on unattractive refining margins and weak demand. Imports were also lower compared to the previous month partly due to the closure of a processing plant at a state-owned refinery.

WHAT'S AHEAD: All three energy agencies--the EIA, OPEC and the International Energy Agency--are scheduled to publish their monthly reports next week, even though some analysts say they don't expect any major adjustments to forecasts given that all three institutions revised their demand projections downwards in October.

Meanwhile, China is expected to release its crude oil processing data.

At a macro level, investors will keep a close eye on U.S. consumer price index and producer price index data, as well as initial jobless claims and retail sales figures all due next week.

Write to Giulia Petroni at [e-mail]

(END) Dow Jones Newswires

11-08-24 1227ET