In recent months, the global oil market has been rife with pessimism. Analysts and institutions alike have echoed concerns regarding surging inflation in the United States, attributing part of the problem to high energy prices. The U.S. administration's core strategy to combat inflation includes ramping up domestic oil production, a move aimed directly at lowering energy costs. To add to this gloomy sentiment, several other factors loom: OPEC’s production increase plans, recently established peace talks between Israel and Lebanon, and a string of downgrades from Wall Street firms on global oil demand have all contributed to a pervasive sense of dread in the oil markets.

Despite these prevailing negative sentiments, oil prices have demonstrated a surprising resilience. As of the latest trading sessions, Brent crude has rebounded to around $73 per barrel, while WTI crude surpassed $69, reflecting a day-on-day increase of more than 1%. Several critical factors underpin this price stabilization:

Firstly, there is robust demand for fuel oil.

Fuel prices in Asia have soared to their highest levels since 2022, while in Europe, prices for the primary fuels used in shipping and power generation have reached their highest seasonal levels in at least a decade. Recent months have also seen diesel prices climb, alongside naphtha prices, which are crucial for plastic production, nearing multi-year highs. This strength in refined products suggests that the demand outlook might not be as bleak as some analysts portray.

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Kieran Gallagher, General Manager of Vitol Group's Bahrain office, remarked this week: “The fundamentals of the oil market don’t look optimistic, but I believe there are some bright spots.” He emphasized that the demand for fuel oil and naphtha has remained “extremely robust,” which has come as a pleasant surprise for his trading firm.

Secondly, the fragility of peace talks adds complexity to the market landscape.

There is a significant desire among right-wing factions in Israel to establish new settlements on the ruins of Gaza, essentially leading to its annexation. Such moves could irrevocably damage the relationship between the United States and Saudi Arabia. Nevertheless, this is a course that Netanyahu’s government feels compelled to pursue.

Even though the U.S. has emerged as the largest oil producer globally, the sheer volume of oil produced in the Middle East means that any uncontrollable conflict could have profound implications for oil prices.

Thirdly, OPEC has postponed its planned production cuts.

Reports from OPEC+ suggested that the organization is considering delaying its oil production increase initially set for the first quarter of 2025. The policy meeting, originally scheduled for a recent Sunday, has been pushed to December 5, allowing for further discussions on this and other options. Crucially, the planned increase in output from the UAE in January 2025 is a critical issue that requires resolution.

Analysts from Deutsche Bank indicate that OPEC+ is likely to postpone its production enhancement plans by at least three months. They anticipate that such a delay could provide essential support to oil prices. Barbara Lambrecht, one such analyst, noted, “The schedule conflicts are thought to be one reason, but there is also speculation about whether, as has frequently happened in the past, difficulties in forming a joint production strategy exist.” She emphasized that it is more about discrepancies in members' quotas rather than a collective strategy.

On Tuesday, Saudi Energy Minister Abdulaziz bin Salman met with Russia's Alexander Novak and Iraq's Mohammed Shia' al-Sudani in Baghdad to discuss the importance of maintaining market balance and fulfilling reduction commitments. The following day, Saudi and Russian ministers also engaged in talks with Kazakhstan’s Almassadam Satkaliyev.

Although Iraq, Russia, and Kazakhstan have struggled with adhering to their OPEC+ reduction commitments this year, the group's data has shown some improvement in performance over the past few months.

Finally, there is a notable decline in crude oil inventories.

According to the EIA report, as of the week ending November 22, U.S. commercial crude oil inventories, excluding Strategic Petroleum Reserve, decreased by 1.844 million barrels to 428 million barrels, a drop of 0.43%—a reduction more significant than the expected 605,000 barrels.

Another point emphasized by bullish market proponents is the inventory depletion. IEA data indicates that oil inventories in developed countries are about 100 million barrels below the five-year average, nearly equivalent to a day's worth of global oil consumption. Some market observers suggest this could even push oil prices modestly higher.

Daan Struyven, co-head of commodity research at Goldman Sachs, stated, “Based on the relatively low level of global inventories, oil prices are undervalued by about $5.” The bank projects that Brent crude prices could peak at $78 per barrel byJune 2025, before dropping to $71 the following year.

In summary, the outlook for oil prices may not be as dire as many institutions on Wall Street claim, especially given the deeper influences of current geopolitical tensions and global inflation on the world economy. The dynamics of oil pricing hierarchy extend beyond mere supply and demand, weaving in complex interrelations notorious in today’s world landscape.