Weekly Decline in Oil Prices: Geopolitical Tensions and Demand Concerns Take Center Stage
Crude oil prices are poised to decline on a weekly basis, overshadowed by tensions in the Middle East and uncertainties surrounding OPEC+'s production policies. As of the latest hour, the price of Brent crude is trading at $71.10 per barrel, while West Texas Intermediate (WTI) is changing hands at $68.20. Although the ceasefire brokered by the U.S. between Israel and Hezbollah in Lebanon brought a temporary sense of calm to the region, violations of the ceasefire and mutual accusations among the parties have caused fluctuations in the markets.
In addition to these developments, Russia's attacks on Ukraine's energy infrastructure pose a potential threat of retaliation from the West. Analysts suggest that this situation could potentially impact Russia's oil industry. Despite these uncertainties, OPEC+ postponed its planned meeting regarding production increase. The meeting, which was initially scheduled for Sunday, has been rescheduled to next Friday due to scheduling conflicts. This situation raises expectations for the continuation of production restrictions.
The postponement of OPEC+'s meeting to determine its production policies is being closely monitored by the markets. The lack of announcement regarding the planned production increase decision and the ongoing uncertainties have led to varying scenarios being evaluated among energy analysts and oil traders. Many analysts believe that, considering the volatility in prices, OPEC+ may delay its plans to ease production cuts.
On the other hand, Commerzbank published a note indicating that the reasons behind the postponement are primarily centered around individual quota disagreements. The bank argued that the overall strategy is less problematic, but countries are negotiating more on their production quotas. Additionally, the bank highlighted that a delay of at least three months could reduce the risk of oversupply in the market.
The potential impacts of global developments on the oil market are also under consideration. The possibility of tighter sanctions on Iran and potentially Russia following Donald Trump's inauguration could trigger supply disruptions. These speculations are among the factors that could lead to a rise in oil prices in the short term. However, the International Energy Agency (IEA) expects a significant surplus in supply for the coming year, which may limit the potential for price increases in the markets.
Charu Chanana, Chief Investment Strategist at Saxo Markets in Singapore, stated in an interview with Bloomberg that the oil market is filled with uncertainties regarding supply and demand. Chanana noted that besides these uncertainties, the excess supply in the market could complicate OPEC+'s decision to withdraw voluntary production cuts. This perspective strengthens expectations that OPEC+ will postpone its supply increase, drawing attention to how prices will shape up in the future.