Oil prices stabilized during early trading on Wednesday as markets assessed the potential impact of the ceasefire agreement between Israel and Hezbollah and ahead of the OPEC Plus meeting next Sunday, which is likely to extend the production cut.
Brent crude futures fell 9 cents to $72.72 per barrel, while US West Texas Intermediate crude futures settled at $68.77, unchanged.
Oil prices fell – yesterday, Tuesday – after Israel agreed to a ceasefire agreement with Lebanese Hezbollah.
cease-fire
The ceasefire agreement, brokered by the United States and France, entered into force – today, Wednesday – at 4 am local time (02:00 GMT).
The agreement paves the way for ending a conflict that has claimed thousands of lives since it was sparked by the Gaza war last year.
Israeli Prime Minister Benjamin Netanyahu said that he is ready to implement the ceasefire agreement with Lebanon, but will “respond strongly to any violation” by Hezbollah.
“Market participants are trying to guess whether the ceasefire will be adhered to,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
Two OPEC Plus sources said – yesterday, Tuesday – that the group’s countries are discussing an additional postponement of an increase in oil production that was scheduled to begin in January, before a meeting on Sunday to decide on production policy during the first months of 2025.
The group pumps about half of the world’s oil and was planning to gradually reverse oil production cuts, with small increases over several months in 2024 and 2025. But the slowdown in Chinese and global demand and the rise in production outside the group undermined this plan.
In the United States, President-elect Donald Trump said that he will impose customs tariffs of 25% on all products coming to the United States from Mexico and Canada, and Reuters quoted two sources familiar with the plan yesterday that crude oil will not be exempt from trade sanctions.
Meanwhile, market sources, citing data from the American Petroleum Institute, said yesterday, Tuesday, that US crude oil inventories decreased while fuel inventories rose last week.
Crude inventories fell by 5.94 million barrels in the week ending November 22, exceeding analysts’ expectations of a decline of about 600,000 barrels.
Without its value
The heads of commodity research at Goldman Sachs and Morgan Stanley said that oil prices are undervalued due to the deficit in the market and risks surrounding Iranian supplies as a result of possible sanctions under the administration of US President-elect Donald Trump.
“We believe that oil prices are about $5 per barrel lower than fair value based on the level of inventories,” Dan Struyven, co-head of global commodities research at Goldman Sachs, told reporters on Wednesday.
Struyven stated that estimates indicate that the oil market witnessed a deficit of about half a million barrels per day during the past year, suggesting that China and the United States will continue to rebuild the stock of strategic reserves to achieve energy security.
He explained that these factors, in addition to the decrease in production from OPEC Plus countries and the possible tightening of sanctions on Iran, which may reduce supplies by about one million barrels per day, may push oil prices to rise in the near term.
Struyven expected the price of Brent crude to reach a peak of about $78 per barrel by next June, before falling to $71 by 2026, as there is large surplus production capacity to address supply shortages when needed.
Expected high
Morgan Stanley’s chief commodities analyst, Martin Ratz, told Reuters last week that oil prices are expected to rise by a few dollars due to low inventories.
He added: “We can point to weak demand as one of the reasons, but there is also some decline in supply, and for many reasons the issue of the impending surplus is linked to next year.”
He pointed out that despite expectations that the surplus supply of oil will reach one million barrels per day next year, driven by production from outside OPEC Plus, there is no precedent for such a surplus to occur, as producers usually reduce production and demand increases when prices fall.
He added: “We are talking about the balance for a year, for example, so I see that the price of oil today gives a little more weight than necessary to future expectations.”
