West Texas Intermediate (WTI) oil prices have dropped to around $59.60 per barrel. This decline is mainly due to worries about oversupply, as an ING report forecasts a surplus until 2026. Goldman Sachs estimates a continuing surplus of about 2 million barrels per day driven by increased production, which could impact oil prices in the future. OPEC and non-OPEC producers are increasing their oil output while demand is slowing down. OPEC+ has approved an increase of 137,000 barrels per day for December, following similar increases in October and November. No further increases are planned for early 2025.

Geopolitical Tensions And Effects

Prices also fell when Russia’s Novorossiysk port reopened after a two-day shutdown due to a Ukrainian attack. However, ongoing geopolitical tensions, including US sanctions on Rosneft and Lukoil set for November 21, might help support prices as China, India, and Turkey look for alternative suppliers. Geopolitical risks, like attacks in Sudan and recent actions by Iran in Gulf waters, continue to disrupt prices. The value of the US Dollar also impacts oil prices since oil is mainly traded in USD. Additionally, inventory data from the API and EIA affects perceptions of supply and demand. Currently, WTI crude is trading around $59.50, reflecting pessimism driven by forecasts of a significant supply glut lasting into 2026. Last week, the Energy Information Administration (EIA) reported an unexpected increase in U.S. crude inventory of 3.5 million barrels, which adds to oversupply worries. This situation suggests that any price increases might be short-lived unless something major changes.

Impact Of US Sanctions

The most critical upcoming event is the new US sanctions on Rosneft and Lukoil, starting this Friday, November 21. These sanctions are important as they target companies responsible for a large share of Russia’s seaborne crude exports, potentially affecting over 1.5 million barrels per day. Major buyers in Asia are already pulling back, creating a short-term supply shock. Looking back to the initial sanctions after the 2022 invasion of Ukraine, the market experienced extreme price swings and uncertainty. While the market eventually adjusted to find new routes for Russian oil, the initial disruption caused significant price spikes. We might see a similar short-term upheaval again, even if the long-term supply outlook remains weak. With this clash between negative fundamentals and a potential short-term boost, traders should be prepared for increased volatility. The CBOE Crude Oil Volatility Index (OVX) has risen over 20% this month to 42, indicating that the market is anticipating sharp price changes. Strategies like straddles or strangles could be beneficial for capitalizing on significant price movements in either direction without predicting the outcome. After this Friday, we will monitor weekly inventory reports from the API and EIA for signs of tighter conditions in the U.S. market due to sanctions. Any unexpected declines in crude stocks could indicate that the supply shock is stronger than the overall surplus trend. These reports will be crucial for adjusting trading positions through December. Create your live VT Markets account and start trading now.

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