Oil Unwillingly Prepares Itself for a Rebound

Brent crude oil prices have declined by 4.4% to $70.92 per barrel this week, though they have since partially recovered to $73.12. Prices have shown resilience since Wednesday, remaining within a broad trading range of $70.00-80.00. Downward pressure continues as the U.S. attempts to drive prices down from the $80.00 resistance level, while support comes from OPEC+ measures. With Donald Trump’s recent victory in the U.S. presidential election, this delicate balance may shift.

Trump has vowed to lower fuel prices to help reduce inflation and to urge the Federal Reserve to expedite interest rate cuts. He has also hinted at a more confrontational stance toward Iran, with potential additional sanctions, which could mean lifting certain restrictions on Russia’s oil exports to balance supply. Iran, in response, may leverage its control over the Strait of Hormuz, potentially disrupting 20% of global oil supplies, which could squeeze prices into a standoff. While Trump's victory has nudged prices toward support, oil will likely need further certainty in geopolitical and macroeconomic developments to sustain a move lower.

The International Energy Agency (IEA) has slightly revised its forecast for global oil production upward to 102.6 million barrels per day in 2024, while OPEC has lowered its demand forecast due to economic slowdowns in China and India, a conservative view that helps OPEC+ maintain current supply-demand dynamics.

In the U.S., API data showed an unexpected decline in oil inventories by 777,000 barrels versus an anticipated increase of 1.0 million barrels, giving additional support to Brent crude prices around the $69.00-71.00 range. Meanwhile, the U.S. Energy Information Administration (EIA) will soon release its monthly oil inventory report, and key industrial production and retail sales data from China are due Friday. These data releases, even if positive, are unlikely to drive significant downward pressure on oil prices.

Investor sentiment in late October was bearish, as evidenced by net outflows of $166.33 million from the U.S. Oil Fund (USO). However, USO saw net inflows of $46.0 million last week, indicating support at $69.00-71.00 is seen as resilient, though potentially breachable if sentiment sours sharply. Otherwise, prices seem positioned for a gradual recovery towards the upside.