Oil prices fell even with Israel’s recent counteroffensive against an Iranian military site that resulted in four fatalities.
On Monday, oil prices opened lower, with Brent crude dropping over 4%, pushing the market back under $73 per barrel, according to a note from ING commodities strategists.
Analysts observed that Israel’s response seemed measured, as it focused solely on Iranian air defense and missile production facilities, rather than targeting Iran’s energy or nuclear infrastructure, which had raised concerns in the market.
ING noted that Israel’s more focused response could allow for de-escalation, and the morning’s oil price movements indicate that the market shares this perspective.
“While it is still unclear if or how Iran may retaliate, the government has downplayed the damage caused by Israel’s response”. The Iranian supreme leader has said that the attack should not be “exaggerated or downplayed”.
“Clearly, if we do see some de-escalation it would allow fundamentals once again to dictate price direction. And with a surplus market over 2025, this would mean that oil prices are likely to remain under pressure”, ING said.
According to data released by Baker Hughes on Friday, the US oil rig count dropped by two last week.
As of the week ending October 25, the total number of oil rigs, which serves as a short-term production indicator, decreased to 480.
This figure represents a decline of 24 oil rigs compared to the same time last year. At the close of trading on Friday, the price of Brent crude, the international benchmark, was $75.55 per barrel, while the American benchmark, West Texas Intermediate (WTI), stood at $71.56 per barrel.
Oil prices rose on Friday in global commodities markets as supply risks overshadowed weak demand forecasts. Brent crude reached $77.15 per barrel, while West Texas Intermediate (WTI) saw a 0.83% increase, bringing it to $73.85 per barrel.
Fears of supply disruptions from the ongoing conflict between Israel, Hamas, and Hezbollah fueled the price hikes. Israeli airstrikes in southern Lebanon on Wednesday night left 10 dead, including 5 paramedics, and injured 12, according to the Lebanese Civil Defense. Many countries are evacuating their citizens due to the rising violence. On Thursday, Hezbollah retaliated by launching rockets at Israeli military sites, following Israel’s airstrike on a Hezbollah member in Syria.
Simultaneously, Israel has intensified its airstrikes on Gaza, despite global calls for a ceasefire. Medical sources reported that seven Palestinians, including three children, were killed in the latest attacks.
Meanwhile, in the United States, hurricane Milton left over 2 million people without power in Florida, increasing fuel demand as residents lined up at gas stations, fearing gasoline shortages.
China’s economy is also expected to drive up oil demand, with new stimulus measures anticipated over the weekend to bolster economic activity.
Supply concerns have kept the market on edge, with analysts pointing to heightened volatility. Speculation continues over a potential Israeli retaliation against Iran following recent missile attacks, though the US and Gulf nations are urging Israel to avoid targeting oil infrastructure.
Recent inventory data from Insights Global revealed a drop in gasoil and fuel oil stocks in the ARA region, while gasoline inventories increased. In the US, natural gas prices rose slightly, despite higher-than-expected storage growth of 82 Bcf, as reported by the EIA.
Oil prices remained stable in Asian trading on Monday as markets awaited the OPEC+ meeting on June 2, where producers are anticipated to discuss continuing voluntary output cuts for the rest of the year.
As of 0638 GMT, the Brent crude July contract increased by 24 cents to US$82.36 a barrel, while the more active August contract rose by 29 cents to US$82.13.
U.S. West Texas Intermediate (WTI) crude futures climbed 28 cents to $78 per barrel.
Last week, Brent ended about 2% lower, and WTI lost nearly 3% after Federal Reserve minutes revealed that some officials were willing to tighten interest rates further if necessary to control persistent inflation.
Public holidays in the U.S. and UK on Monday are expected to result in relatively thin trading.
The upcoming OPEC+ meeting was postponed by a day and will be held online, OPEC announced on Friday.
Producers will discuss whether to extend voluntary output cuts of 2.2 million barrels per day into the second half of the year, with three sources from OPEC+ countries indicating an extension is likely.
Oil futures are expected to maintain today’s gains due to the anticipated extension of the cuts, said Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet.
“However, the trajectory of price action will be significantly influenced by the U.S. Producer Price Index (PPI) data scheduled for the week, which will in turn shape the Federal Reserve’s approach to potential rate adjustments,” Sachdeva said.
Stock markets around the world are mixed Monday, as a jump in oil prices threatens to add upward pressure on inflation.
The S&P 500 was 0.1% lower in midday trading. The Dow Jones Industrial Average was up 207 points, or 0.6%, at 33,481, as of 11:35 a.m. Eastern time, while the Nasdaq composite was 0.9% lower.
Oil jumped roughly 6% after Saudi Arabia and other crude-producing countries said over the weekend they would cut production. That lifted stocks of energy companies, including a 5.6% rise for Exxon Mobil, 8.2% leap for Marathon Oil and 4.4% gain for BP.
While the jump in oil helps energy producers, it also weighs on much of the rest of the market. That’s because it dents one of the main themes that helped stocks rise in this year’s just completed first quarter: that turmoil in the banking system and a continued slowdown in inflation could push the Federal Reserve to ease its hikes to interest rates.
The Fed has already jacked rates up at a feverish pace over the last year in hopes of undercutting high inflation. Higher rates can do that by slowing the economy, but they risk causing a recession later on.
They also drag down prices for stocks, bonds and other investments. That’s a factor that helped cause the second-largest U.S. bank failure in history last month, which in turn meant harsher scrutiny on the strength of banks worldwide. The fear is that the banking industry’s troubles could lead to a pullback in lending to all kinds of companies, which would further hurt the economy.
Hope on Wall Street had been rising that the Fed may already be done raising rates and that cuts to rates could even happen later this year. Such cuts would release some of the pressure on the economy, which is still growing thanks to a strong job market but has shown pain in the housing market and other corners.
Cuts to rates also tend to act like steroids for financial markets. U.S. stocks have tended to return an average of 8% in the three months following the peak of the Fed’s federal funds rate, according to Goldman Sachs. That includes six instances going back to 1982.
That’s why so much furor has built among traders as they bet on how much further the Fed will raise rates. On Friday, they were leaning slightly toward the Fed holding steady at their next meeting in May, which would be the first time in more than a year that it didn’t hike rates.
But following Monday’s leap for oil prices, bets built that the Fed may hike rates by another quarter of a percentage point in May, according to CME Group.
Short-term Treasury yields initially rose on such expectations, though they eased after a separate report showed manufacturing activity in the U.S. weakened last month by more than economists expected.
March marked its fifth straight month of contraction and showed the biting effects of past rate hikes are already working through the system. Following that report, the two-year Treasury yield fell to 3.99% from 4.04% late Friday. It had been above 4.11% earlier in the morning.
It got its initial push higher from a 6.3% rise for a barrel of U.S. crude oil to $80.42. It climbed on the announcement for production cuts from May until the end of the year.
Less supply of oil would raise its price, as long as demand stays steady. And the weekend’s announcement comes on top of a reduction announced last October, one that infuriated the Biden administration.
Brent crude, the international standard, rose 6.1% to $84.77 per barrel. It’s roughly back to where it was a month ago, though it’s still well below where it was in March 2022, when it topped $130 per barrel after Russia’s invasion of Ukraine raised worries about energy supplies.
“This will create both political waves across Europe and even higher general inflation in the USA, leading to renewed pressure on the Federal Reserve to keep hiking rates aggressively,” Clifford Bennett, chief economist at ACY Securities, said in a report.
Higher interest rates hit all kinds of stocks, but they tend to hit high-growth companies the hardest. That puts extra pressure on the Big Tech stocks that have an outsized effect on the S&P 500 and other indexes because of their immense size.
In the first quarter, hopes for easier interest rates meant Big Tech stocks were among the main reasons for a gain in the S&P 500. Strategists at Morgan Stanley led by Michael Wilson are skeptical they’ll continue to hold up better than others when the market is still under downward pressure, as they expect.
“We see little evidence that a new bull market has begun and believe the bear still has unfinished business,” Wilson wrote in a report.
Microsoft was one of the heaviest weights on the index Monday after it slipped 1.2%.
Tesla fell 6.5% after it said over the weekend that deliveries in the first three months of the year fell short of analysts’ expectations, even though it still set a record.
In markets abroad, stock indexes were mixed across Europe and Asia
With the unexpected production cuts announced by some of the top exporters in the globe, oil prices have risen.
After increasing by more than 5%, the price of Brent crude oil is now trading above $84 a barrel.
Experts cautioned that escalating oil costs might make lowering living expenses more difficult.
The RAC motoring club, however, stated that it does not anticipate a jump in gasoline prices until the higher oil price is maintained for a number of days.
After Saudi Arabia, Iraq, and numerous Gulf states announced on Sunday that they were reducing output by more than one million barrels of oil per day, Brent crude prices increased.
In addition, Russia said it will extend its cut of half a million barrels per day until the end of the year.
Energy giants BP and Shell saw their share prices rise on Monday, with both rising more than 4%.
Oil prices soared when Russia invaded Ukraine, but are now back at levels seen before the conflict began.
However, the US has been calling for producers to increase output in order to push energy prices lower. A spokesperson for the US National Security Council said: “We don’t think cuts are advisable at this moment given market uncertainty – and we’ve made that clear.”
Yael Selfin, chief economist at KPMG, warned that the oil price surge could make the battle to bring down inflation harder.
However, she said that rising oil prices won’t necessarily lead to higher household energy bills.
“The energy price cap, that households benefit from, has already been determined using earlier market expectations,” she said. “Plus, when you look at energy use in households, it tends to be more gas-heavy rather than oil.”
There have also been fears that there could be an impact on transport costs, if fuel prices rise.
The RAC said it does not expect this to happen in the short-term.
“Any sudden increase in the cost of oil shouldn’t result in a rise in the UK average price of petrol for a fortnight, unless of course the barrel price stays higher for several days,” RAC fuel spokesman Simon Williams told the BBC.
The reduction in output is being made by members of the Opec+ oil producers. The group accounts for about 40% of all the world’s crude oil output.
Saudi Arabia is reducing output by 500,000 barrels per day and Iraq by 211,000. The UAE, Kuwait, Algeria and Oman are also making cuts.
A Saudi energy ministry official said the move was “a precautionary measure aimed at supporting the stability of the oil market”, the official Saudi Press Agency said.
Nathan Piper, an independent oil analyst, told the BBC the move by Opec+ appeared to be an attempt to keep the oil price above $80 a barrel in the medium term, given that demand could be hit by a weakening global economy and sanctions have had a “limited impact” on restricting Russian oil supplies.
Oil prices had risen 5% since Friday and the announcement was widely anticipated. Following the announcement of the output cut, Brent crude, the benchmark for oil prices, increased to $91.95 (£81.69).
Two million fewer barrels of oil are to be produced each day, equivalent to 2% of the global supply, the Organisation of the Petroleum Exporting Countries (Opec) and Russia have agreed.
The move is an effort to increase prices in countries feeling the heat from high energy costs.
Group members Saudi Arabia and Russia have led the group to cut output which is the sharpest decline since the early days of the pandemic when demand collapsed and oil prices dropped steeply.
The announcement has been widely expected and oil prices had risen 5% since Friday. The benchmark of oil prices, Brent crude, rose to $91.95 (£81.69) following news of the production cut.
Prices had dropped to about $90 (£79.93) a barrel, down from highs of $120 (£107) three months ago, amid fears of a global economic recession that would reduce demand.
Officials in the Joe Biden Whitehouse had been lobbying Opec members to avoid production cuts which would raise oil prices in the run-up to the American midterm elections.
Since Russia’s invasion of Ukraine, the Biden administration has called for production to be kept high to ease energy security and reduce price pressure.
“The decision is technical, not political,” United Arab Emirates Energy Minister Suhail al-Mazroui told reporters ahead of the Opec meeting.
“We willnot use it as a political organisation,” he said, adding that concerns about a global recession would be one of the key topics.”
For the first time in nearly two months, crude oil prices have fallen below $100 a barrel, reflecting investors’ growing concerns about a US recession that could crimp demand for oil.
The price of West Texas Intermediate crude tumbled as much as 10% Tuesday, to hit a low of $97.43 before closing at $99.50, down 8% on the day. Brent crude oil was down by more than 10% when it hit a low for the day of $101.10 a barrel, before settling at $102.77 at the close.
It’s the first time that WTI has been below $100 since May 11. That was also the last time Brent, which typically trades a bit higher, was below $102 a barrel. Brent has not been below $100 since April 25.
Wholesale gas futures fell as well, down almost 10% for the day at the close, or 36 cents a gallon.
The national average cost of a gallon of gas at the pump is now $4.80, according to the latest AAA reading, down one penny from Monday and 8 cents from a week ago. Gas prices crossed the $5 mark for the first time on June 11 and hit a peak of $5.02 a gallon on June 14.
Until fairly recently, oil and gasoline investors had believed that there was little in the way of market forces to keep prices in check in the near term. “There is now a perceived huge downward risk tied to recession risk,” he said.
There have been mounting fears of a recession in recent weeks, which has helped take oil prices sharply lower. Brent was at $123.58 a barrel on June 8, while WTI was at $122.11. But since that peak, the Consumer Price Index showed consumer prices hit a 40-year high, one of the key metrics that prompted the Federal Reserve to hike interest rates by three-quarters of a percentage point as a way of combating those price pressures. That has raised expectations that the central bank’s aggressive moves to cool the economy could cause job losses and a recession.
Oil and gas prices surged earlier this year after Russia’s invasion of Ukraine prompted the United States and its European allies to sanction Russian energy exports, effectively choking off one of the world’s largest producers.
But the supply of oil is only part of the equation traders consider when bidding on oil futures. Demand is the other part. And nothing kills demand like a recession, which reduces economic activity overall. When people get laid off, there are fewer people driving to work or to the store or other destinations.
The previous time gas hit a record high was during the Great Recession, when the national average reached $4.11 a gallon in July 2008. But by the end of that year, it had fallen 60%, to $1.62 a gallon, as demand plunged. But cheap gas was of little consolation to the nearly 3 million people who lost their jobs during those five months.
So far, drivers have seen relatively little relief at the gas pump from the recent fall in oil and gasoline futures. The national average price of gas has fallen only 4%, or 22 cents, since the June 14 record, while wholesale gas futures have dropped 22% since topping out at $4.28 a gallon on June 9.
US gasoline retailers have little incentive to cut prices more deeply with strong demand for gasoline with the summer driving season in full swing.
“There’s no compelling reason for retailers to lower their price more with this strong demand,” said Kloza.
There could be more price drops at the pump in the near term — a decline of another 10 cents a gallon in the next week or so wouldn’t be a surprise, Kloza said. Station owners who are paying less for wholesale gas will be watching to how much of the savings their competitors are passing on to customers before they set their own prices. But the expression that gas prices go up like a rocket and come down like a feather is likely to play out once again, Kloza said.
There likely won’t be any big declines until schools reopen and the summer driving season ends this fall, he predicted. There are also risks that further developments in Russian oil exports tied to the war in Ukraine or hurricanes hitting US oil infrastructure along the Gulf Coast could send prices climbing up rapidly once again.
“I wouldn’t put away the fives used in gas price signs quite yet,” he said.
The coronavirus has led to the cancellation of some petroleum contracts, the Chief Executive Officer of the National Petroleum Commission, Egbert Faibille Jnr., has disclosed.
Egbert Faibille also indicated that the impact of the COVID-19 induced contract cancellation affected local jobs in the oil and gas sector.
“The consequential effect of the cancellation of contracts amidst the already reduced workforce in the industry resulted in lay-offs of both expatriate and local personnel. Over 500 Ghanaian workers in the industry are expected to lose their jobs as a result of the pandemic.â€
“Local businesses have been significantly hit by the pandemic. The pre-COVID-19 outlook of the industry resulted in considerable investment in infrastructure, personnel and technologies in anticipation of participation in major projects.
Indeed, over 98 contracts worth over $389 million were awarded by Aker Energy, AGM, Eni, GOSCO and Springfield from Q4 2019-Q1 2020.
“The cancellation of these contracts such as the 5-year Maersk Drilling contract which was terminated in June 2020 together with associated sub-contracts would have a devastating toll on local businesses,†he said while briefing the Western Regional House of Chiefs on the petroleum sector.
Oil prices fell on Monday to their lowest in more than a year, dragged down by worries about lower demand in top crude importer China after a new coronavirus outbreak spread from there to about 20 other countries.
Brent crude was at $56.26 a barrel by 9.26 am GMT, down 36 US cents. Prices dropped by more than a $1 earlier in the session to $55.42, the lowest since January 2019.
US West Texas Intermediate (WTI) crude fell 5c to $51.51 a barrel, after earlier hitting a session low of $50.42, the lowest since January 2019.
On the first day of trade in China after the New Year holiday, investors erased $393bn from China’s benchmark stock index on Monday, sold the yuan and dumped commodities as fears about the virus dominated the markets.
Iranian oil minister Bijan Zanganeh said the spread of the coronavirus had hit oil demand and called for an effort to stabilise oil prices.
“The oil market is under pressure and prices have dropped to under $60 a barrel and efforts must be made to balance it,†Zanganeh said.
He said Iran would agree to hold an earlier Opec meeting if the rest of the group’s members agreed to oil production cuts. Opec and its allies, a group known as Opec+, are considering meeting in February instead of March.
Joint Technical Committee (JTC), made up of members of Opec and other producers, is scheduled to meet in early February to assess the virus effect, Opec+ sources said. “The market needs assurances that the supply/demand equation remains in balance for prices to hit a floor. This suggests a commitment from Opec not just to extend oil supply cuts, but even implement deeper ones beyond March,†said FXTM analyst Hussein Sayed.
As the coronavirus outbreak hit fuel demand in China, Sinopec Corp, Asia’s largest refiner, told its facilities to cut throughput this month by about 600,000 barrels per day.
Independent refineries in Shandong province, which collectively import about a fifth of China’s crude, also slashed output by 30% to 50% in just over a week, executives and analysts said.
“Clearly travel restrictions and the extended shutdown of large parts of the Chinese industrial sector have weighed on oil demand and this is reflected in the weakness that we are seeing in the ICE Brent time spreads,†ING analyst Warren Patterson said.
The premium of the first-month Brent contract to the second-month contract narrowed to 9c a barrel on Monday from 70c a month ago, indicating that traders are not concerned about supply tightness because of the demand effect of the coronavirus.
