Geopolitical tensions have intensified, causing a spike in international oil prices. Recently, WTI crude oil prices made substantial gains, surpassing $68, $69, $70, and $71 per barrel, reaching a high near $72. Brent crude oil also surged past $75 per barrel. Despite pressure from weaker-than-expected demand and increasing supply, the impact of geopolitical events on oil prices remains significant.
In the last week of September, while China's favorable policies boosted the stock market and major industrial commodities like steel, non-ferrous metals, and chemicals saw significant gains, oil's performance was underwhelming. With a slowdown in demand growth and OPEC+ moving towards increased production, international oil prices declined for three consecutive months, hitting annual lows in early September.
However, on October 1, a series of geopolitical events unfolded. The Iranian Revolutionary Guard launched numerous ballistic missiles at key military and security targets in Israel, in response to Israeli actions. The Iranian president stated that the missile strike was a decisive response to Israeli "aggression." This news led to a V-shaped reversal in international oil prices, which initially fell but then surged over 2% by the close of the trading session.
This rebound in oil prices appears to be a catch-up compared to other commodities that rose at the end of September. On the last trading day of September, domestic SC crude oil futures surged over 4%, recovering losses since the beginning of the month, while international oil prices recorded slight declines.
Analysts note that China’s stimulus measures were largely ignored by the oil market due to the delayed impact on demand, while the market focused more on immediate supply increases.
Throughout the third quarter, the market faced continuous pressure from increasing supply. Notably, OPEC+ announced plans to gradually reverse a production cut starting in December. Additionally, Libya’s potential resumption of oil production and Saudi Arabia's readiness to increase production to maintain market share further dampened oil market confidence. Despite disruptions caused by Hurricane Helene in the Gulf of Mexico, production levels mostly returned to normal by September 29.
Various factors underscore the pressure from increasing oil supply. Market consensus on limited demand from major economies and predictions of future supply surplus have driven oil prices down. Morgan Stanley estimated a global surplus of approximately 1 million barrels per day by 2025, and Goldman Sachs highlighted supply surplus as a key factor for prolonged weak oil prices.
However, the recent direct attack by Iran on Israel has temporarily overshadowed concerns about excess supply. Goldman Sachs analysts warned that further escalations in the Middle East, particularly involving potential disruptions in the Strait of Hormuz, could significantly impact the market and cause local oil prices to soar. ANZ Bank analysts added that Iran's involvement increases the likelihood of supply disruptions, though the sustained rise in oil prices will depend on whether Israel directly attacks Iran’s military, infrastructure, or oil industry.
