Oil prices surged more than 2% on Thursday, breaking above the $70 level, driven by rising geopolitical tensions that outweighed an unexpected build in US crude inventories. Brent crude futures rose $1.48, or 2.03%, to $74.29 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose $1.53, or 2.23%, to $70.28. At the time of writing, Brent crude was trading at $74.32, while WTI crude was trading at $70.25.
Oil prices and Market Movers: Biden Administration Moves
Despite the sharp rise in oil prices, options markets are signaling no major concerns ahead, reflecting the lack of expectations for an escalation in the near term. In the context of geopolitical developments, the Biden administration recognized Edmundo Gonzalez as the elected president of Venezuela, which may complicate the next US administration’s attempts to negotiate with President Nicolas Maduro. It is worth noting that Venezuela is one of the most prominent oil producers in Latin America, and has the largest oil reserves in the world.
Technical analysis of oil prices: Limited growth expectations
Crude oil is expected to continue to rise thanks to geopolitical tensions, but markets are treating this increase with caution, as the oil market is still suffering from an excess of supply compared to demand. Despite this, the long-term outlook remains largely unchanged.
Technically, the 55-day simple moving average (SMA) level at $70.08 is the first major barrier to watch, followed by the 100-day SMA at $72.89. The 200-day SMA at $76.48 remains relatively distant, but may be tested if tensions continue to escalate.
Oil Market Outlook: Demand Rises, Global inventories Fall
The International Energy Agency said that weak Chinese demand, the resumption of full oil production in Libya, and the expected withdrawal of OPEC+ production cuts suggest that the oil market in 2025 will be well supplied. However, the agency showed that global stocks are falling faster than expected, noting significant declines in stocks in its November report.
US oil inventories continue to rise
Weekly data from the Energy Information Administration (EIA) showed that crude oil inventories in the United States rose for the third week in a row. This increase was due to the recovery in US oil exports, which are offsetting the flow of imported supplies to the Gulf Coast, which is helping to boost domestic stocks.
In September, global inventories fell by 47.5 million barrels, bringing them to their lowest level since January. The sharpest declines were in oil products in OECD countries and inventories in non-OECD countries. Industrial inventories in OECD countries fell by 36.4 million barrels to 2.8 billion barrels, about 95.3 million barrels below the five-year average.
According to preliminary data, global inventories continued to fall for the fifth consecutive month in October, falling by 1.16 million barrels per day (bpd) during the third quarter of the year. The IEA had previously forecast a decline of only 380,000 bpd in that period, reflecting a gap between actual declines and previous expectations. This gap is likely due to missing or inaccurate data in some countries.
Ultimately, the IEA may have to revise its demand estimates upwards and provide a more optimistic outlook for oil market balances in 2025, analysts expect. Giovanni Staunovo, a commodities analyst at UBS Group, said, “The demand forecast will likely rise, making the outlook less pessimistic.”
IEA Forecast: Oil Market Balance to Rebalance
The latest oil market report from the International Energy Agency indicates that the supply-demand balance outlook may need a revision soon, after global stock data for the third quarter revealed more optimistic trends than the agency had previously anticipated. Recently, the pace of stock draws accelerated more than expected, creating a large gap in the forecast of “lost barrels,” which could prompt the IEA to revise its demand estimates in the near future.
For years, the IEA has been pessimistic about the expected oil surplus in the market in 2025, with previous reports indicating that supply would exceed demand by more than 1 million barrels per day. However, recent data, including reports from the US Energy Information Administration (EIA), has shown a significant decline in global stocks, with a daily draw of 900,000 barrels in the third quarter of 2024. This draw was the largest since the fourth quarter of 2021, when surging demand following the Covid pandemic led to massive drawdowns in stocks.
According to the International Energy Agency, inventories fell by 1.16 million barrels per day in the third quarter of this year, double the rate expected. Based on these unexpected changes, the agency is likely to revise its demand forecasts upward. The energy industry commonly makes such adjustments, where forecasts reflect new data. The IEA confirmed that its current forecasts indicate that global supply will still exceed demand by 1 million barrels per day in 2025, even if OPEC+ cuts continue. However, this gap may be smaller than previously expected, especially given that inventories are falling faster than initially estimated.
