Crude oil prices rise 1% but bearish sentiment dominates market

Crude oil prices gained more than 1% on Monday after dropping 7% last week as the market focused on demand concerns. 

Last week, oil prices dipped sharply due to worries over demand from China, and easing concerns of potential supply disruptions in the Middle East. 

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was at $69.69 per barrel, up 1.5% from the previous close. 

The price of Brent crude oil on the Intercontinental Exchange was at $73.91 per barrel, up 1.2%. 

Traders have resorted to bargain buying after prices had fallen sharply last week. 

Geopolitical premiums on oil prices diminish

The risk premium on oil prices due to the ongoing conflict in the Middle East has significantly reduced over the last week. 

After Iran had attacked Israel on October 1, oil prices surged more than 10%. Brent oil breached $80 per barrel for the first time since August. 

As the Middle East sits on over half of the world’s oil reserves, escalating tensions threaten supply from the region. 

However, the risk premium on oil prices reduced thereafter as reports claimed that Israel may avoid targeting Iran’s oil facilities in its response to the October 1 strikes. 

“Although concerns over potential supply disruptions persist due to ongoing conflict between Israel and Hezbollah, the immediate threat of significant supply constraints seems to have diminished for now,” James Hyerczyk, author at Fxempire.com, said in a report. 

Market focuses on OPEC production

Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report:

Experts believe that the oil market is expected to focus on production from the Organization of the Petroleum Exporting Countries and allies as the cartel is scheduled to increase output from December. 

“The market is now waiting for signals whether this production increase will actually materialize or whether it will possibly be postponed again,” Fritsch said. 

If the cartel goes ahead with its plan to unwind some of the voluntary production cuts in December, oil prices could fall further. 

However, an announcement by OPEC and Saudi Arabia to postpone the increase could support bullish sentiment. 

Several members of the OPEC+ alliance have been cutting oil production voluntarily since the beginning of this year. This amounts to 2.2 million barrels per day of oil. 

US inventories provide some support

In the week ended October 11, US crude oil inventories fell 2.2 million barrels per day, according to data from the Energy Information Administration. 

The data, which was released last week, came as a bit of a relief after a sharp fall in oil prices. 

However, the report also showed that the US crude oil production rose to a record high of 13.5 million barrels per day in the week ended October. The US is the largest oil producer in the world. 

Bearish trend to continue

Oil prices are expected to remain in bear territory as concerns over poor demand from China are likely to weigh on the sentiment. 

Meanwhile, both OPEC and the International Energy Agency have cut their forecasts for oil demand growth in 2024 and 2025. 

Fxempire.com’s Hyerczyk, said in a report:

Traders should remain cautious, keeping an eye on developments in the Middle East and US economic data, which may provide brief price relief, though sustained recovery seems unlikely in the near term