This week, international oil markets exhibited a volatile downward trend due to geopolitical tensions and supply data impacts. Despite a slight rebound at the end of the week, with Brent crude futures rising 0.4% to $73.10 per barrel and U.S. crude futures increasing 0.3% to $69.49 per barrel, both closed the week down approximately 4% and 3%, respectively.
The initial boost in oil prices earlier in the week was short-lived. Reports suggested potential Iranian strikes on Israel via Iraq, which temporarily spiked market sentiment, pushing oil prices up by over $2 intraday on Friday. However, this effect was short-term as analysts anticipated a restrained Iranian response, lowering the risk of direct military conflict and consequently causing oil prices to ease.
Conversely, data from U.S. energy giants ExxonMobil and Chevron showed record high global and U.S. oil production levels, exerting significant downward pressure on oil prices and limiting gains from geopolitical tensions.
Adding to the complexity, U.S. labor market data released this week showed near-stagnant non-farm employment growth in October, mostly due to aerospace industry strikes and hurricanes, leading to a decline in manufacturing jobs. This weak employment data heightened fears of economic slowdown, further weighing on oil markets due to oil's sensitivity to economic activity.
Analysts from SEB suggested that Iran's military actions might be symbolic rather than full-scale, aiming to demonstrate strength without causing major oil supply disruptions. This cautious outlook weakened the support for oil prices from geopolitical conflicts.
Market analysts broadly agree that record U.S. oil production may lead to further market oversupply, pressuring oil prices. The potential for the Federal Reserve to cut rates given weak U.S. employment data could further impact oil demand. According to RJO Futures senior strategist Bob Haberkorn, the oil market is influenced by multiple factors, including high geopolitical uncertainty, which has not substantially benefited oil prices due to oversupply and economic weakness. Oil prices may continue fluctuating at low levels in the coming weeks unless Middle Eastern tensions escalate or global economic indicators show unexpected positive signals.
Overall, the oil market this week was affected by various complex factors. While geopolitical risks persist, oversupply and weak U.S. employment data have hindered price rebounds. The upcoming focus will be on geopolitical developments and the Federal Reserve's rate decisions, which are expected to cause significant oil price volatility. In the future, the market should closely monitor the potential for growing tensions between Iran and Israel, the impact of the U.S. presidential election and Federal Reserve decisions, and adjustments to oil-producing countries' supply policies to alleviate current oversupply issues.
