Light crude futures remained almost flat on Monday as traders closely monitor possible US interest rate cuts and assess geopolitical developments. Market attention is divided between economic indicators, policy decisions and political changes in the United States.
Light crude oil futures were trading at USD$78.53, down USD$0.11 or -0.14%.
Federal Reserve Policy in Focus
Investors are looking ahead to the Fed’s next meeting on July 30-31, with interest rates expected to remain unchanged. However, recent inflation and labor market data suggest a possible rate cut in September, which could affect oil demand and prices.
President Joe Biden’s decision to abandon his re-election bid and endorse Vice President Kamala Harris did not significantly affect oil markets. Analysts suggest that the US president’s impact on oil production may be exaggerated, as evidenced by record production levels during the Biden administration despite climate change initiatives.
A possible Trump presidency could increase U.S. oil demand due to his anti-electric vehicle stance, potentially offsetting recent OPEC+ production cuts. Conversely, unfettered oil production under Trump could drive down prices, potentially forcing marginal producers to halt production.
Slower-than-expected growth in China in the second quarter of 4.7 percent continues to weigh on oil prices. Recent stimulus measures, including cutting key interest rates, are aimed at boosting the economy, but they have yet to show signs of major structural shifts.
Market Outlook
The short-term outlook for oil prices remains cautiously bearish. While geopolitical tensions and potential political shifts in the United States offer some support, concerns about Chinese demand and global economic growth continue to weigh on prices. Traders should closely monitor the Fed’s upcoming decisions and further developments in US policy for potential catalysts to move the market.
Oil stability despite Biden’s announcement and anticipation of interest rate decisions
Oil prices were little changed on Monday after Joe Biden announced that he would not seek a second term as US president, while investors await further signs of a possible U.S. interest rate cut as early as September.
Brent crude futures fell nine cents to $82.54 a barrel and U.S. West Texas Intermediate crude futures fell 19 cents to $79.94. Brent crude remained relatively stable last month, hovering between $82 and $88 a barrel.
The US Federal Reserve is scheduled to review its policy from July 30 to 31, as investors expect it to keep interest rates unchanged, although there are indications that a cut will occur at the September meeting.
News that President Biden decided on Sunday to abandon his re-election bid was not a major factor in oil markets. He has endorsed Vice President Kamala Harris as the nominee who should face Republican Donald Trump in the November election..
“We believe that the US president’s ability to influence US oil production may be overstated,” said Sovro Sarkar, head of the energy sector at DBS, noting that US production reached record levels last year despite the Biden administration’s moves to tackle climate change.
“If anything, a Trump presidency could affect the rise in oil demand in the United States, given his stance against electric vehicles,” Sarkar added. IG analyst Tony Sycamore said this could offset some of the support markets gained from recent OPEC+ production cuts.
The other side of unrestricted U.S. oil production could be lower oil prices, which could have the unintended effect of forcing marginal producers to halt production, Sycamore said.
Morgan Stanley expects oil prices to fall to $70
The investment bank said in a note quoted on Monday that the oil market was tight for now and included a price range of $80 a barrel, but as seasonal demand began to decline in the fourth quarter, market balances were set to return.
Morgan Stanley analysts wrote that in the fourth quarter of 2024, the market will be balanced “when favorable monsoon demand winds recede and supply from OPEC and non-OPEC returns to growth.”
Next year, the market will head for a surplus amid rising supply from OPEC+ and non-OPEC+ producers, the bank’s commodity strategists believe. According to the bank, global refinery operation will peak in 2024 in August, and is not expected to reach this level again until July next year.
That is why Morgan Stanley expects Brent crude prices to fall from current levels to mid-seventies to $70 per barrel in 2025.
Early on Monday, Brent crude prices rose 0.52% to USD$83.07, while US West Texas Intermediate crude traded 0.49% at USD$80.46. In the note, Morgan Stanley reiterated its forecast for the price of $86 per barrel of Brent crude for the third quarter of 2024.
Goldman Sachs also recently confirmed its forecast from June and Brent crude prices are expected to rise to $86 a barrel this summer amid strong consumer demand, putting the market in a large deficit in the third quarter.
OPEC+ delegates told last week that the Joint Ministerial Monitoring Committee (JMMC), the OPEC+ committee that monitors the oil market, is not expected in August to recommend any changes to the group’s current production policy plan.
