Market Analysis

After a steep decline, oil prices stabilize, but Middle East unpredictability endures

Amos Simanungkalit · 16 Oct 20247.2K Views

Oil prices stabilized on Wednesday, buoyed by OPEC+ production cuts and uncertainty surrounding the ongoing conflict in the Middle East. This follows a significant drop in prices on Tuesday, which saw crude decline over 4% to its lowest level in nearly two weeks, driven by concerns over demand and reports indicating that Israel would refrain from attacking Iranian nuclear and oil facilities, thereby alleviating fears of supply disruptions.

As of 0800 GMT, Brent crude oil futures increased by 22 cents, or 0.3%, reaching $74.47 per barrel. Meanwhile, U.S. West Texas Intermediate crude futures rose by 28 cents, or 0.4%, to $70.86.

However, apprehension remains regarding potential escalation in the conflict between Israel and the Iran-backed militant group Hezbollah. OPEC+ supply restrictions are set to continue until December, when certain members plan to begin rolling back some of the cuts.

Tamas Varga from oil broker PVM noted, "The end of the current year could be relatively tight due to strong consumption and OPEC+ limitations." He added, "In contrast, 2025 is expected to see a more abundant supply than 2024, which will likely exert downward pressure on oil prices."

On the demand front, both the Organization of the Petroleum Exporting Countries and the International Energy Agency have recently downgraded their forecasts for global oil demand growth in 2024, largely due to reduced expectations from China. Despite attempts at economic stimulus in China, which includes plans to raise an additional 6 trillion yuan ($850 billion) from special treasury bonds over three years, oil prices have not seen substantial support.

Investors are also awaiting the latest U.S. oil inventory data, with the American Petroleum Institute's report expected later on Wednesday, followed by government figures on Thursday. These reports are delayed by a day due to a federal holiday. Analysts surveyed by Reuters anticipate an increase of approximately 1.8 million barrels in crude stockpiles for the week ending October 11.