Oil prices continue to slide despite Middle Eastern tensions
Originally uploaded on October 13, 2023
Oil prices reversed some of this week gains in trading on Thursday after a large build in U.S. crude stockpiles outweighed tensions in the Middle East.
In the past 2 weeks, the price for Brent crude oil has closed as high as $96.55 per barrel and as low as $84.07, while yesterday it settled at $85.82.
Volatility in oil markets is nothing new, particularly in the context of the past few years, however these recent weeks have witnessed some of the biggest price swings of the year. As has been pointed out all year in our previous blogs at present the only certainty in oil prices is uncertainty!
The oil market had been on a bullish trajectory after Saudi Arabia and Russia's announcement in late August to extend their production cuts until the end of the year. This news had propelled oil prices towards the $100 per barrel mark, a level not seen since September 2022. However, a sudden shift occurred between September 27th and October 5th, as Brent crude oil prices plummeted by nearly 13%, abruptly ending the upward momentum.
The reversal was triggered by concerns about suppressed economic growth, driven by widespread apprehension about the potential impacts of prolonged high-interest rates. These fears have affected various financial markets, including bonds and stocks, leading to risk aversion and a subsequent oil market sell-off by speculative investors.
Following last week’s decline, there has been no respite from volatility for crude oil prices. Renewed conflict between Israel and the Palestinian group Hamas have exacerbated the uncertainty in oil markets. As reported by Reuters, “Hamas launched the largest military assault on Israel in decades on Saturday, while Israel pounded the Gaza Strip on Tuesday with the fiercest air strikes in the 75-year history of its conflict with the Palestinians.”
Given the extent to which commodity markets were impacted by the outbreak of conflict in Europe following Russia’s invasion of Ukraine in 2022, a lot of focus has turned to the risks associated with a conflict in the Middle East and the possible impact on oil prices.
Despite the welcome fall in oil prices over the past two weeks the downside is expected to be limited.
The Organization of the Petroleum Exporting Countries said in September that the market is facing a deficit that could potentially cause the most significant petrol shortage in more than a decade.
The International Energy Agency (IEA) also warned earlier in the month that the supply cuts made by Russia and Saudi Arabia posed a substantial threat to the continued price volatility. In line with these, prices aren’t expected to come down significantly in the near future.
However, for fuel card users a fall in the region of 3 -4 pence per litre for next week will be very welcome news!