The price of Brent crude ended the week at $71.05 after closing the previous week at $72.90. The price of WTI ended the week at $66.95 after closing the previous week at $70.43. The price of DME Oman crude ended the week at $70.24 after closing the previous week at $72.78.
Oil prices continue to be weighed down by concerns about the extent of oil demand growth which were not helped by the International Energy Agency stating in its November report that China’s oil demand in 3Q averaged 270,000 bbl/d in comparison to the previous year and has been decreasing for six consecutive months.
Looking forward, there are some developments brewing that could provide upward support for oil prices.
Geopolitical
On Nov. 17 it was reported that President Biden has authorized Ukraine to use U.S.-made long-range ATACMS missiles to attack Russia. While the strategic purpose of this decision is unclear, the decision creates the potential for further escalation. Previously, Putin has stated that such a move would be viewed as the U.S. being at war with Russia.
Additionally, Russia is becoming more aggressive in weaponizing its energy resources. Last Nov. 15, Russia informed Austria that it is reducing gas supplies because of a legal dispute with OMV. Additionally, Russia is limiting exports of enriched uranium to the U.S. – at least temporarily. Russia controls around 50% of global capacity, and the U.S. imports around 25% of the U.S.’ requirement of enriched uranium from Russia. The move by Russia is in response to the U.S. imposing a ban on imports of Russia-enriched uranium, which allows for imports until 2028, but only through a waiver arrangement.
Oil supply
With the election of Donald Trump to the U.S. presidency, we are expecting that the U.S. will move back to imposing maximum pressure on Iran, which will affect the Iranian oil and gas sector. During Trump’s previous tenure as U.S. president, Iran’s oil production decreased to 2.1 MMbbl/d. The approach with respect to Iran changed with the election of Joe Biden, which included the loosening of sanctions. In turn, Iran has been able to increase its oil production to 3.2 MMbbl/d and its exports to 1.7 MMbbl/d with China being the main benefactor of the increase in Iranian oil exports.
The Biden Administration also reduced restrictions on the Venezuelan oil sector. Consequently, Venezuela has been able to increase production to a level approaching 1 MMbbl/d from around 300,000 bbl/d in 2020. While the U.S. reimposed sanctions in April of this year, Venezuela has continued to export crude oil and refined products with exports reaching the highest volumes in four years. A major destination for Venezuelan oil exports has been India.
We are expecting that the Trump administration will have more success disrupting Venezuela’s oil sector than disrupting Iran’s sector. The U.S. can cancel the license that allows Chevron to operate in Venezuela through its joint venture with PDVSA and put pressure on India to reduce its imports from Venezuela. A major impediment to limiting Iran’s oil exports is that China does not recognize the U.S. sanctions on Iran.
Economic
The major economies – the U.S., Europe and China – are in a period where support is being provided with more support expected in the future. Despite lingering inflation, it appears that the Federal Reserve will move forward with another 25-basis point cut in December. The market is currently expecting additional rate cuts of 0.75% during 2025. We are expecting that the ECB will cut rates at its December meeting – and it would not be a surprise if the ECB cut rates by 50 basis points. Earlier this month. China’s government, through the Standing Committee of the National People’s Congress, approved a US$1.4 trillion plan to support economic growth. The plan will provide the central government with additional borrowing of around US$840 billion over three years and an additional US$540 billion over five years. Local governments will be able to refinance their highest-interest debts.
While the above developments could provide upward support for oil prices, there remain factors that will put downward pressure on oil prices. The availability of oil supply is an obvious factor, given the amount of spare supply that is currently shut in. It is essential for oil prices that members of OPEC+ maintain discipline and continue to wait to restore its production cuts – especially so because of the bearish sentiment of the oil traders. Last week, traders of WTI decreased their net long positions by reducing their long positions while adding to their short positions. After last week’s decrease, net long positions are 52% below the level seen on July 16 of this year, which was the highest level of the year, and when the price of WTI was $80.76. Traders of Brent crude also decreased their net long positions last week.
For the upcoming week, the price of Brent crude could test its support at $70 and if the price breaks below this level, the price of Brent could fall to $66. We think, however, that the price of Brent crude will not break below $70 but will bounce off the support back toward $73.
For a complete forecast of crude oil and refined products and other energy-related fundamentals and prices, please refer to our Short-term Outlook.
About the Author: John E. Paisie, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.
Recommended Reading
TotalEnergies Pauses Business with Adani, Says it was Not Aware of US Investigation
2024-11-25 - French oil major TotalEnergies SE was not informed of a U.S. investigation into possible bribery and corruption at Adani Green Energy Ltd., it said on Nov. 25, adding it will stop financial contributions to its Adani Group investments following last week's indictment.
Quantum Teams Looking for Acquisitions ‘Off the Beaten Path’
2024-10-14 - Blake Webster, partner at Quantum Capital Group, said the private-equity firm’s portfolio teams are looking to buy from sellers looking for cash buyouts, though not necessarily in the usual places.
Report: Colonial Pipeline Considering $10B Sale
2024-10-29 - Colonial owns a 5,500-mile pipeline network which carries more than 100,000 gallons of fuel to an area stretching from Houston to New Jersey.
Enterprise Closes $950MM Acquisition of Delaware’s Piñon Midstream
2024-10-28 - Enterprise Products Partners acquisition of Piñon Midstream expands Enterprise’s New Mexico Delaware Basin footprint with sour-gas processing.
DNOW Closes Cash Acquisition of Water Service Company Trojan Rentals
2024-11-26 - DNOW Inc.’s acquisition of Trojan Rentals LLC is its third purchase aimed at providing a holistic water management solution to the market, the company said.
Comments
Add new comment
This conversation is moderated according to Hart Energy community rules. Please read the rules before joining the discussion. If you’re experiencing any technical problems, please contact our customer care team.