Oil markets are exhibiting a cautious stability as geopolitical tensions surrounding Iran appear to have cooled, while concerns about a potential supply glut linger. Despite a modest uptick on Friday, , prices are still tracking towards a second consecutive weekly decline, according to reports from Reuters and Bloomberg. Brent crude was trading at $67.72 a barrel, up $0.20, while West Texas Intermediate (WTI) edged higher to $62.98, gaining $0.14.
The initial surge in oil prices earlier in the week, fueled by heightened U.S.-Iran tensions and discussions of potentially deploying a second aircraft carrier to the Middle East, has subsided. While rhetoric remains firm, the prospect of immediate military escalation appears diminished, contributing to a more measured market response. As CNBC reported on , prices had risen by over 1% on Wednesday, driven by these concerns, but that momentum has since waned.
Contributing to the downward pressure on prices is a growing expectation of oversupply. The International Energy Agency (IEA) in its Oil Market Report highlights a projected increase in global oil supply of 2.4 million barrels per day (mb/d) in , split relatively evenly between OPEC+ and non-OPEC+ producers. This follows a substantial increase of nearly 3.1 mb/d in .
Global oil demand is also showing signs of moderation. The IEA forecasts demand growth of 850 kb/d in , a slight increase from the 770 kb/d recorded in . However, this growth is almost entirely driven by non-OECD economies, with China leading the way. A notable shift is occurring in the composition of demand, with petrochemical feedstock products now expected to account for over half of the increase, compared to a third in , when transport fuels dominated.
Supply disruptions in – stemming from severe winter weather in North America and outages in Kazakhstan, Russia, and Venezuela – temporarily constricted global oil supply, causing it to plunge by 1.2 mb/d to 106.6 mb/d. However, these disruptions appear to be easing, further contributing to the oversupply concerns. Refinery crude throughputs also experienced a dip in , falling from an all-time high of 86.3 mb/d to 85.7 mb/d, due to maintenance and lower margins.
Inventory levels are also playing a role. Observed global oil inventories rose by 37 million barrels in , resulting in total builds of 477 mb, or 1.3 mb/d, for . China significantly contributed to this build, with crude oil stocks increasing by 111 mb and oil on water swelling by 248 mb, a substantial portion of which consisted of sanctioned oil – accounting for 72% of the increase.
The impact of these market dynamics is being felt across the oil sector. Oil companies in India, including BPCL, IOCL, and HPCL, are facing pressure as crude oil prices continue to rise, as reported by MSN. The fluctuations in crude prices directly affect their profitability and operational margins. The IEA report also notes a decline in refinery margins in , as increased runs eased product market tightness.
Looking ahead, the oil market remains sensitive to geopolitical developments and shifts in supply and demand fundamentals. While the immediate threat of escalation with Iran has receded, the situation remains fluid. The IEA forecasts crude runs to increase by an average of 790 kb/d to 84.6 mb/d in , led by non-OECD regions. However, continued monitoring of global economic conditions and potential supply disruptions will be crucial in determining the trajectory of oil prices in the coming months.
The current market conditions suggest a period of cautious optimism, with prices likely to remain range-bound unless significant new factors emerge. The interplay between geopolitical risks, supply dynamics, and demand growth will continue to shape the oil market landscape.
