Crude oil prices held on to gains on Tuesday as the market waited with bated breath for the OPEC+ meeting on Thursday.
Oil prices got some support from positive economic data from China. The country’s manufacturing activity rose slightly in November.
This raised optimism about stronger demand for crude oil in the coming months with more recovery.
However, prices remain locked in a narrow range, failing to break out above the pivotal point.
Prices are likely to trade rangebound ahead of the ministerial meeting of the Organization of the Petroleum Exporting Countries and allies on Thursday, Sriram Iyer, senior market analyst at Reliance Securities, had earlier said.
At the time of writing, the price of West Texas Intermediate crude oil on the New York Mercantile Exchange was $68.38 per barrel, up 0.4%. Brent crude oil on the Intercontinental Exchange was $72.16 per barrel, up 0.5% from the previous close.
Geopolitical tensions persist
Tensions in the Middle East continued to complicate the market outlook for crude as concerns over supply disruptions could support sentiments.
David Morrison, senior market analyst at Trade Nation said:
There’s (an) uneasy ceasefire between Israel and Hezbollah in Lebanon.
Last week, Israel and Hezbollah agreed to a ceasefire deal in Lebanon. But, reports have claimed that both sides have accused each other of violations.
Nine people were killed in strikes on two southern Lebanese towns shortly after Hezbollah fired missiles on an Israeli military position in the disputed Shebaa Farms area on Monday, Reuters reported.
If the ceasefire does not hold in the region, crude prices may rise temporarily. The Middle East sits on more than half of the world’s oil reserves.
However, tensions in the region have not affected oil supply so far.
OPEC+ meeting
A handful of OPEC members, including Saudi Arabia and Russia are scheduled to unwind some of their voluntary cuts, starting January.
Eight members of the group had been adhering to 2.2 million barrels per day of oil voluntary output cuts since the start of the year. Out of this, the Kingdom alone has been reducing production by 1 million barrels per day.
According to Commerzbank AG, OPEC+ may extend its voluntary production cuts till the end of March next year to balance the market.
However, the International Energy Agency believes that the oil market will be oversupplied in 2025 regardless of OPEC’s decision on Thursday.
Analysts at ING Group, said in a note:
The challenge is that the group needs to find a balance between trying to support the market and limiting its loss in market share. Complicating matters still further, some members are still failing to stick to their agreed production levels.
Demand concerns
Oil prices have been weighed down by poor demand from China, the world’s largest importer of the fuel.
China’s gasoline demand may peak next year, Vortexa’s senior market analyst Emma Li had told Invezz in an interview last week. She also said that demand for overall crude oil may also remain subdued next year, with a slight recovery in the second half of the year.
Against such a backdrop, a production increase is likely to weigh heavily on crude oil prices. Prices could even fall below $65 per barrel, its lowest level this year.
Additionally, reports claimed on Monday that Saudi Arabia may slash crude oil prices exported to Asia in January to the lowest in years.
This is also indicative of muted growth in oil demand, not only in China, but in other parts of Asia as well.
Investors will also monitor the release of key economic data from the US later this week. Stronger data would likely prompt the US Federal Reserve to slow down the pace of its rate cuts going forward.
Elevated interest rates weigh on crude oil prices as it leaves less liquidity in the market and borrowing costs also climb.
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