The global oil market is traditionally subject to multifactorial influence, but the geopolitical aspect has prevailed here since the first decade of August. At any moment, Iran may deliver a retaliatory strike on Israel for the assassination of HAMAS political council’s head. The timing is not known though. Stock market players do take this into account — but oil quotes are very volatile due to other aspects favoring a lower barrel price.
On August 26, oil prices showed yet another remarkable increase over the military escalation in the Middle East. The reason was Sunday's attack by the Hezbollah movement, with hundreds of rockets and drones fired at Israel; and the Israeli military said it had struck Lebanon using aircraft to prevent a larger attack. This has been the severest clash in over 10 months of the border war, raising fears of a wider conflict in the region.
During the August 26 session, Brent crude futures rose by $2.3 (+2.91 percent) to $81.32 per barrel by noon GMT, while US crude (WTI) futures reached $77.05 per barrel, up by $2.22 (+2.97 percent). Brent's intraday high of $81.35 per barrel became the highest over the last 11 days.
Among ither things, prices were boosted by a governmental statement from the eastern part of Libya with an announced shutdown of all the oil fields, cessation of production and exports. The Benghazi government is not internationally recognized but controls most of the country's oil fields. The Tripoli-based National Petroleum Corporation in charge of oil resources has yet to confirm the news. Libyan factions have been fighting for control over the central bank and oil revenues.
A significant risk to the oil market might be a further drop in Libya’s oil production amid local political tensions; moreover, there are fears that production may be "reset" from the current level of 1 million bpd. "Potentially, we may face the fact that most of Libya’s production will be halted for a while," Saxo Bank analyst Ole Hansen said.
Growing quotations were also brought about by Friday's statement by US Federal Reserve System Chairman Jerome Powell on the regulator's approval of interest rate cuts. It should come as no surprise that monetary easing prospects have improved sentiment across the entire commodity sector.
And still, investors remain cautious about what the Organization of Petroleum Exporting Countries and its allies is doing as it plans to step up production later in the year, though the OPEC+ deal implementation has been extended for the whole of 2025.
A funny contextual "dessert" has been announced either: Donald Trump now accuses OPEC of pandering to his Democratic competitor in the presidential race —the cartel is allegedly lowering oil prices to improve Kamala Harris' electoral position.
Meanwhile, the non-cartel supply of oil is on the rise. For example, the United States showed a record high of 13.4 million bpd in early August. According to EIA forecasts, global oil consumption will keep growing this year, and this is 0.8 million barrels more than 12.6 million bpd a year ago.
By the end of 2024, oil production in the United States will increase from 12.9 million to 13.3 million bpd with further growth forecasts, BloombergNEF predicts. Moreover, the American oil production sector has gained greater stability owing to continued spending cutback, cost reduction, and engagement of cutting-edge practices.
Today, American oil companies are capable of extracting a lot more “black gold” at significantly lower costs than just a few years ago. At the same time, production costs may further decline, because productivity is showing early signs of improvement this year. Prospects of the kind might largely neutralize OPEC+'s efforts to stabilize the market.
The forecast background is "bearish" in this context. August 27 saw the American Goldman Sachs (GS) investment bank lower its forecast for the average 2025 price of Brent to $77 per barrel (from $82). The expected fluctuation range was lowered by $5 per barrel to $70-85.
The bank's analysts note that OPEC+’s efforts have brought the market to a state of balance, but the alliance's expected increase in black gold production in the fourth quarter is going to be a game-changer. Moreover, Goldman strategists draw attention to the fact that oil reserves in the OECD countries (Organization for Economic Co-operation and Development) have not altered much this summer, despite the bank’s decrease expectations.
According to GS, additional pressure on the market will come from a higher-than-expected supply factor to result from the industry’s increased processing efficiency. At the same time, oil demand build-up in China has slowed down amid facilitated public access to e-vehicles, and lower petrochemical sector activity.
