Oil prices stay volatile with potential for buyers on further declines

Oil remained volatile on Tuesday, with prices falling and rising throughout the session as traders focused on increasing supply and limited demand. 

The US’ plan to purchase up to 3 million barrels of crude oil to fill up its Strategic Petroleum Reserve (SPR) supported sentiments. 

Prices had been volatile on Tuesday after falling 6% on Monday on easing geopolitical tensions in the Middle East.

At one point, oil pared gains from earlier in the day and were trading little changed from Monday’s close.

However, prices rose again after the US stock markets opened on Tuesday.

At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was $67.36 per barrel, up 0.6%. The Brent oil contract on the Intercontinental Exchange was $71.02 per barrel, rising 0.5% from the previous close.

US plans to buy oil for SPR

According to a Reuters’ report, the US government is planning to purchase up to 3 million barrels of crude oil for its SPR. 

The news comes on the heels of the US Presidential election next week.

The US had authorised the sale of 180 million barrels of crude oil from its SPR in 2022 to cool down domestic fuel prices. 

Prices had spiked with Brent nearing $140 per barrel in early 2022 after Russia invaded Ukraine. 

The US’ plan to purchase more oil for the SPR could generate some demand in the country, and support prices in the coming weeks. 

Since the massive sale in 2022, the US government had bought back 55 million barrels of oil at a price of $76 per barrel, significantly lower than the $95 per barrel level it had sold the oil.  

Easing tensions in the Middle East

Oil prices had plunged on Monday after Israel’s attack against Iran over the weekend avoided oil and nuclear sites. 

As the threat to oil supply from Iran and the Middle East diminished, prices fell sharply. 

“Israel's retaliatory strike against Iran over the weekend is apparently being interpreted defensively by the market, as only military targets such as missile launchers were hit,” Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report. 

Iran produces about 3.2 million barrels per day of crude oil, according to data from the Organization of the Petroleum Exporting Countries. Though exports remain under sanctions from Iran, the country has found a way of supplying oil to several countries, especially China. 

The limited strike by Israel also eased concerns over further escalation of tensions in the region.

Iran reportedly said the attack by Israel should not be “exaggerated’ or “downplayed”. 

Oil prices are at appropriate levels

According to Commerzbank AG, the Brent oil price is appropriately placed in the low $70 per barrel at present. 

Fritsch noted:

Oil supply is likely to increase from December as OPEC+ is scheduled to reverse some of their voluntary production cuts.

Saudi Arabia, the de-facto leader of the cartel, has recently hinted that it is prepared for lower oil prices to regain market share. 

The desired oil price level for OPEC countries is above $80 per barrel, which is the breakeven price for production. 

However, Brent is currently $9 lower than the $80 per barrel level.

The market remained focused on whether OPEC would go ahead with its plan of increasing production from December. 

Moreover, even if Saudi Arabia wants to increase output, the question remains whether other members of the group would concur with the existing plan. 

Oil price forecast

Experts at Fxempire.com believe that the immediate support for WTI oil price is around $67.50 per barrel. 

Christopher Lewis, author at Fxempire.com, said in a note:

For Brent, the psychological support remains at $70 per barrel. 

Traders are likely to buy oil if prices fall below these levels as it would be attractive to them. 

Moreover, next week’s US election presents a lot of uncertainties, while geopolitical tensions also ebb and flow. 

Traders will also monitor the policy meeting of the US Federal Reserve next week.

The Fed is likely to cut interest rates by 25 basis points, which could support demand.