Oil prices have too little support without geopolitics

This week, Brent oil prices rose by almost 8%, recovering from all the losses of September. The sharp aggravation of the situation in the Middle East traditionally causes the price of oil to increase, and this time it has quickly moved from the level of 70 to 78. However, except for geopolitics, there are no significant supporting factors in the oil market. If the intensity of emotional climate weakens, the cost of commodities may lose a significant part of the recent gains.

Reuters analysts point out the persisting weakness in demand for oil in Asia. Although September imports totaling 27.05 million barrels per day surpassed the August figure by 2.2%, the 9-month total is still behind the figure for the same period in 2023. OPEC's forecast for the current year assumed an increase in oil consumption for China by 650 000 barrels per day, for India by 270 000 bpd, and for other Asian countries by 350 000 bpd. Such results are unlikely to be achieved in the time remaining until the end of the year.

On top of that, this week, the OPEC+ representatives have confirmed their intentions to start increasing oil production in December. According to Bloomberg estimates, during the first month of winter, the cartel's production will increase by 180 000 barrels per day. At this point, the members of the association ignored the concerns about a surplus of crude oil on the world market. This is probably related to possible curbs on production and exports from Iran, but even here the situation is not that clear-cut.

Reuters experts believe that even in case of destruction of Iran's oil production facilities, OPEC+ can quickly make up for the missing supplies. The country produces about 3.2 million barrels of oil daily, and about half of it is exported. At the same time, the total production cuts of OPEC+ exceed 5 million barrels, which means that there is more than enough spare capacity to compensate for the Middle East disruptions. Because of this, oil prices have only limited growth potential.

The rise in Brent prices may slow down as it approaches the level of 79. The target of the subsequent correction will be the level of 75.5.

The following trading strategy can be suggested:

Sell Brent oil near the level of 79. Take profit – 75.5. Stop loss – 80.5.